By Mohan Sule
Ever since the deregulation of the London financial markets by Margaret Thatcher in October 1987, every reform is expected to produce a Big Bang. Following the opening up India’s economy by the P V Narasimha Rao-Manmohan Singh duo in 1991, every budget since then is viewed as a make-or-break occurrence. The urge for lofty deliverables stems from the fact that the country is always in a crisis mode. The causes may vary, ranging from lack of rainfall, runaway public expenditure, galloping inflation to the after-effects of global catastrophes. Consequently, the collective will of the nation imposes on those at the helm mythical powers to bring order to the chaos, not one day at a time but at the stroke of a pen, unmindful that magnificent edifices that can withstand time are built brick by brick. There has to be a reason to undertake destruction to raise a new architecture. Britain was losing its preeminence as a global hub for doing business due to the outcry system for executing trades and fixed brokerage. India was on the verge of default and had to pawn its gold for foreign exchange to meet its import requirement. In present times, the corruption and the populist policies of the UPA government had turned off investors, plunging the currency to a new low. Hence, the hopes of a quick turnaround by those who had lost more than two years of their lives fighting price rise and stagnation had reached unrealistic proportions by the time Narendra Modi ascended to power. The report card so far: the Wholesale Price Index near zero, bidding for natural resources, infra projects on the fast-track, and initiatives such as Make in India, Digital India and Swatch Bharat launched to make India an attractive destination.
If the first budget of the new government in July 2014 was crammed with good intentions like cleaning the Ganga, setting up smart cities, running bullet trains and making India a magnet for religious tourism, this budget’s four cornerstones are financial inclusion, creation of jobs, building up of infrastructure to improve the quality of life, and tax transparency. The approach is to treat the root cause of inequality rather than the symptoms by offering curatives such as subsidies and guaranteed wages for digging holes leading to nowhere. The rural employment scheme has not been abandoned. In fact, the allocation to it has been increased, probably necessitated not only due to wider coverage of road and irrigation projects but also to make up for the deficient rainfall last year, which had led to slump in sales of consumer durables. As such, the pumping of more liquidity in rural areas could act as quantitative easing for FMCG, automobile, cement and steel makers and telecom services providers. An indirect fiscal stimulus will be cash transfers in lieu of subsidies and providing health, medical and pension benefits for a nominal premium. The idea of universal insurance coverage is path breaking like the Jan Dhan Yojna, the universal banking system. Similarly, the intention to bring in a bankruptcy code is a historic development. It will aid in creative destruction and evolution of new opportunities, so vital for a dynamic economy.
Clearly influenced by the role of venture capitalists in nurturing and sustaining Silicon Valley ideas, the Mudra Bank is a concept whose time had come. Despite the inroads by microfinance agencies, unorganized businesses have very few bankable avenues to rely on. The pampering of the poor and the marginalized is not at the expense of big companies. Another game changer is the offer of five 4,000-MW ultra mega power plants, with all clearances in place, to bidders. Other infra projects, usually victims of the crossfire between the industry and environmental ministries, too, can benefit from this novel concept. The scrapping of wealth tax and replacing it with surcharge on the income tax of the super rich will result in better compliance. An important step towards stability of the tax regime is the cut in corporate tax by 5% over four years in return of elimination of tax exemptions and doing away with retrospective taxation. The 2% increase in service tax along with higher freight for coal, cement and steel, will be inflationary in the short term but is a transition to the era of goods and service tax, which is 14%, from April 2016. Besides, GST will replace all other existing Central and state levies. If a realistic roadmap is drawn to nip benami transactions, it will indeed be one more visionary feature of the budget. The stock market, comfortable with cold numbers, appeared confused at a vision statement instead. It need not. The fallout from the budget will gradually gather momentum to create a transformational change in the way we are governed.
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