A futuristic Budget

The budget proposals for 2022-2023 tabled in Parliament and the preceding speech of the Union Finance Minister are in many ways futuristic and growth-oriented. Yet, judicial, administrative and police reforms remain in the shadows. This threatens to wipe out substantial gains of reforms in other areas and in particular in the ease of doing business and living.

As the headlines settle, the four themes of the budget are becoming manifest:

Futuristic

The budget seeks to address the issues of current sectors of the economy with equal, if not sharper focus on the sunrise sectors like Information Technology, Drones, AI, Blockchain, Digital Currency and even DiFi (Distributed Finance). It also focuses on the green and circular economy with emphasis on clean energy. The proposed investments in e-governance and bridging the digital divide will improve productivity and ease of living. The idea  of extending the benefit of technology from communication, manufacturing, trade, distribution and entertainment to defence and agriculture provides a futuristic approach across the spectrum.  Harnessing the scope of the International Financial Center for experimentation and a global window including operations of Foreign Universities will function as a sandbox for leapfrogging of the economy. Initiatives have the potential to deliver a future-ready economy.

Holistic

The sharp focus on ‘Gati Shakti’ will benefit the economy as a whole by enhancing the demand for products and services, reducing supply chain cost and improving inventory management.  The facilitation of startups, venture capital and private equity will hopefully lead  to a spurt in innovation and co-creation of globally competitive product and services.

Growth

The proposed increase of 35% in public capital expenditure to Rs. 7.5 lac crore further boosted by Rs. 1 lac crore of interest-free loans to State governments for CAPEX will help sustain growth impulses and pave the way for crowding in of the private capex. 

The ‘Gati Shakti’ mission alone has the potential to open up a storehouse of employment opportunities

High GDP growth warrants a high level of investment. Twin-engine firing – private and public sector investment alone can enable sustained investment of over 30% to build a potential GDP growth of 7-8% trajectory. Even though both the private sector and banks sheets have been cleaned, some hesitancy is holding the speedy run. The proposal of enhanced public sector capex will hopefully entice them to join the procession of the medium to long-term CAPEX cycle.

Employment

The three biggest employment generators of India next to agriculture are construction, infrastructure and manufacturing. The budget proposals deepen the revival of the construction sector by greater allocation to affordable housing and low cost of financing.  The ‘Gati Shakti’ mission alone has the potential to open up a storehouse of employment opportunities.  The PLI schemes launched last year have revived the manufacturing sector, helped boost exports and provided lakhs of jobs. The IT, Telecom and Railway Minister in a TV interview was at pains to emphasise that the electronic manufacturing sector alone in its aspiration to cross $300 billion of exports in the next three years will create over 10 million jobs. 

The direct and indirect tax proposals did not temper with the current rates demonstrating an environment of stability. In fact, the budget seeks to eliminate inconsistencies in capital gains tax and some areas of customs.  The critics credit the consistency to tax buoyancy rather than any effort of the government.

Inflation

Both WPI & CPI have emerged as a major risk to GDP growth. Inflation also threatens to snatch away the gains of economic growth from the larger sections of  society. Hence, the Finance Minister has reaffirmed the commitment  of the government to a fiscal deficit glide path and maintaining prudence by lowering revenue expenditure and enhancing capital expenditure.  The budget proposals as also derived numbers reflect a sense of transparency.

The journey of simplifying and creating an environment of trust amongst tax payers has been continued. The proposal to allow to correct the numbers, file revised returns and pay revised tax liabilities within two years is to say, “I trust you”.  The digital filing, faceless assessment and appeals, digitisation across the economy and integration and aggregation of data and above all the confidence and trust-building have been strong levers of tax buoyancy; complemented of course by GDP growth. 

The criticism not to dole out moneys to poorer sections of society even in an environment of revenue gale to spur demand and mitigate their misery is only partly justified.  The current global environment is beset with the pandemic and its effects,there is also the revival of nationalism and geopolitical tensions.  All part of the melting pot.

First generation reforms on building efficient allocation of factors of production – land, labour and capital are done. Whatever is not done is difficult to accomplish in a vibrant democracy like that of India.  Marginal tweaking will continue along the road of development.  The optimisation of value creation – economists call it Total Factor Productivity (TFP) is achieved by institutional reforms, which the Economic Survey has described as process reforms. 

Implementation of policy decisions for the expected outcomes necessitate authorisations and delegations in an institutional framework.  It also opens up avenues for rent seekers who identify kinks in the highway of process management and delay, derail and even frustrate the objective of that policy. Exit policy is one of the signature reforms of the Modi Government and the objectives were sought to be achieved with the vehicle of one of finest legislations, ‘IBC’.  Unfortunately, it has delivered sub-optimal results, notwithstanding numerous amendments and adequate jurisprudence built up in the last five years. 

Judicial system, bureaucracy, and the police are overdue for a  resurrection

India ranks 168th amongst 180 plus nations in the matter of enforcement of the contract.  It takes on an average over 1200 + days and entails a cost of over 25% of the value of the contract. There are several other areas of concern where delays, cost and deprivation of justice have been voiced. Judicial system, bureaucracy, and the police are overdue for a  resurrection.  Minor tweaking or even reforms will not work.  The edifice of these institutions will have to be rebuilt in consonance with constitutional guarantees.

Unless this is done, the ease of doing business and in particular, ease of living will remain distant dreams. 

On the whole, the key to delivering in a futuristic budget will be execution in a mission mode. Speed has to be stepped up significantly.  The global environment and India’s demography offer probably the last opportunity to take the nation on a new trajectory. The focus must therefore shift to execution.

(The writer is a former Chairman of SEBI and LIC. Views are personal)