Economic Highlights

New Delhi, 5 July 2014

Jaitley’s Budget Trapeze

HOW TO MAKE SHRESTHA BHARAT

By Shivaji Sarkar

All are agog over Finance Minister Arun Jaitley’s maiden Budget to be presented three days hence 10 July. Importantly, on what innovation he formulates to fulfill the BJP’s promise of making the country “Ek Bharat, Shrestha Bharat” towards a new economic pedestal. How he innovates, remains to be seen.

Notably, beset with a difficult economy he has a lot to do. First, take steps to ensure prices not only come down but also remain stable. Two, with a section of the Party wanting relief in income tax, if not abolition, it would be a daunting task for Jaitley to address this critical issue. Three, agriculture needs a new impetus as do health care and infrastructure.

But the new Finance Minister should not get obsessed with high speed but consolidate the transport system. Introduce benevolent programmes for Dalits, weaker sections and women which are part of the BJP manifesto.

Understandably, the burgeoning deficit is his main concern. Given that no Government could achieve its development objectives if deficit remained a concern as it has a multiplier effect. Notwithstanding, economists of think tanks like NIPFP who have different viewpoints. They do not consider deficit as a deterrent, instead, a necessity for the successful implementation of welfare programmes and development of the masses.

Wherein, it could be utilised for investment in infrastructure and the core sector. Not only would it generate jobs but also the benefits would percolate down and accelerate the development process.

Undeniably, Manmohanomics did the opposite. It led to GDP (Gross Domestic Produce) growth, checked the deficit, but increased unemployment and resulted in higher profits for the organised sector and large corporates but impoverished the poor and middle class.

Indeed, the choice for Jaitley is difficult. He has to usher in new economics --- balance concerns of the masses, as promised in the Party manifesto and take care of investment, which would come with growth of the corporates. Consequently, the balancing act would not be easy.

The burgeoning deficit has its problems too. It leads to larger borrowings. As it stands, the UPA’s interim Budget is composed of almost 50 per cent borrowings which do not address the concerns of the aam aadmi. Rather, the people were the worst hit as majority of the Congress-led Government’s programmes suffered the biggest cuts.

Importantly, the 10-year UPA rule shows GDP growth but alongside a phenomenal rise in the number of those unemployed. Thus, under a broader economic revival, the BJP-led Government has to accord high priority to job creation and opportunities for entrepreneurship.

Questionably, should Jaitley consider the formula of two BJP leaders Subramanyam Swamy and Nitin Gadkari for income tax abolition? It appears the Finance Minister might not do this now though he could tweak exemptions slightly as he has to ensure abolition should not cause any loss to the Government. Whatever is notionally lost could be made up by reducing the size of the not-so-honest income-tax department.  

At least, Jaitley should consider freeing bank deposits of tax deduction at source (TDS) which has led to severe sufferings of small depositors and retired people who are subjected to TDS on small FDs and face tremendous problem in recovering taxes which they are not supposed to pay.

Besides, poor women and senior citizens find it difficult to go through unnecessary formalities of filling Form 15 and comply with other paperwork.  A minor concession would help them and the economy along-with not impacting the deficit either. Rather much of the extra expenses people made could save them from harassment and pep up the economy.

Significantly, agriculture is a key area for meeting Prime Minister Modi’s developmental goals. The farmer till date has never got any subsidy as it was always pocketed by the fertilizer and related lobbies. Time now, to reorient subsidies.

Pertinently, focus on the farm sector would be a welcome move for more than one reason. It would boost this segment and give a fillip to rural economy which would help achieve the objective of development and growth. Not only would it increase rural income but also augment the purchasing power of the downtrodden which would result in a rebounding impact on the growth of the manufacturing and industrial sector.

However, this is easier said than done as the Finance Minister has a revenue kitty which has virtually little to spare. Therefore, Jaitley’s objectives might not be easy to achieve as he cannot borrow more given that the more he borrows, the more the inflation. Apart, from causing paucity of funds for other borrowers.

Hence, he has little room for reducing expenditure on salaries, staff benefits, maintenance and other sundry expenses. Add to this, with expenses on police, para-military and security growing Jaitley is facing a conflict of opening up Government recruitment and simultaneously reducing the work force. To reduce expenses, the Finance Minister has to cut workers and if he has to pep up development, Jaitley needs to open up the recruitment process. Choosing either is a problem.

He might promise to develop high impact domains like labour-intensive manufacturing (viz. textile, footwear, electronics assembly, etc.) and tourism. He could also think of strengthening traditional employment bases of agriculture and allied industries, and retail through modernization as well as stronger credit and market linkages. Jaitley might also think of harnessing opportunities provided by upgradation of infrastructure and housing to generate jobs.  

Additionally, with the UPA leaving critical and urgent challenges unaddressed, the Minister needs to change these, and change now on a priority basis. Clearly, Jaitley’s Budget would be a trapeze game as the nation awaits to see whether it would be a repeat of Vajpayee’s Government success and has a benevolent impact. Recall, his NDA left a near double digit growth, low prices, adequate supplies, free economy and a nation that basked in the glory of hope in 2004. Just the opposite what UPA did. Jaitley, it is hoped would be able to fulfill these aspirations of the people. ----- INFA

(Copyright, India News and Feature Alliance)