Not a make-or-break budget

FILE - In this Oct. 22, 2011 file photo, an Indian vegetable vendor talks with his customer at a roadside stall in Kolkata, India. India's food price inflation has climbed to a nine-month high of 12.2 percent despite a long government campaign to control increases, India's finance minister said Thursday, Nov. 3, 2011. (AP Photo/Bikas Das, File)   | Photo Credit: Bikas Das

Both India’s executive decision making and policy thought are on a roll. Dynamic, steady incremental steps have been chosen as the way forward by the leadership. This makes sense when growth is on an upward move, and, no matter what, it’s not going to take off into orbit just because we wish it. Therefore, a solid platform that opens doors to long-term sustained economic and social progress is imperative. Yet, all kinds of views are surfacing, branding the imminent Budget as a make or break occasion. In differing with this analysis, I echo Shakespeare — “striving to better, oft we mar what’s well.”

Can we, for a moment, view the Budget as analogous to a corporate annual report? Both occur because they are required once a year, to take stock of the financial situation and lay out perspectives for short and long terms. Rarely does one find this report covering all policies, tactics or actions required to run a company, or giving a solitary decisive signal to markets; in other words, this annual event is not a make or break occasion.

Strategy for Finance Minister

The key signal from this government to global business and investor space is a capability for financial discipline and prudence.

The last Budget followed a fiscal deficit target of 4.1 per cent of GDP — a clear challenge — and an aspiration to bring this lower. Finance Minister Arun Jaitley seems to be indicating comfort with a long-term target sub -3 per cent. Such a road map is one obvious anchor for the Budget, even with some dilution in the short term. An astute balance between pushing for a public investment-driven growth, while domestic and global market growth remain an issue, and ensuring that subsidies are relevant, effective and delivered efficiently — more bang for less bucks — can be a cornerstone of his strategy.

Expansion of revenue base, particularly through well-organised implementation of GST is another. The Finance Minister may have to loosen purse strings to attend issues created by inverted duty structures and other levies or costs which make India uncompetitive. Intentions to simplify the direct tax regime and administration require concrete translation to avoid ad-nauseam discussion for another year or more. Meaningful expansion of taxpayers without burdening existing ones is a tightrope walk requiring political will. The war on unaccounted monies must intensify, but one will have to be judicious in not creating a new set of problems by turning the clock back to revisit dismantled draconian concepts. If just writing tough laws ensures ethical behaviour, we would never have had problems under the FERA regime, for example, when much distortion actually took place.

The question persists if our expectations are running ahead of realities. Growth beyond the anticipated 6-7 per cent is needed to fill underutilised capacities and this could take time. The future levels of 7-8 per cent need deep structural reforms which will not happen overnight. Corporates face poor top-line growth so far; analysts see many top companies as overleveraged. Small and medium businesses are in tight spots. Indian manufacturing is not in the pink of health and a recovery time frame is not certain. Zeal for fresh investment is inhibited.

Measured expectations

In the circumstances, the Budget can surpass reasonable expectations if it achieves a blend of strengthening consumer sentiment; creating a sound expenditure management and fiscal road map; addressing supply side inflation; proper channelling and timely implementation of public spending; ensuring that life is not further complicated for taxpayers and seriously address industry competitiveness. While it is correct and appropriate for us to retain high confidence in the aggregate, we also owe it to hold measured expectations from a single event.

(Sidharth Birla is immediate past president of Federation of Indian Chambers of Commerce and Industry.)

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Printable version | Jun 19, 2021 1:01:30 PM |

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