Mumbai: Will Prime Minister Narendra Modi do a Luis Suarez with his first Union Budget? You know the Uruguayan who bit the rival Italian team member and got a hero’s welcome in his home country. For all practical purposes it will be Modi’s budget though Union finance minister Arun Jaitley will be presenting the National Democratic Alliance’s maiden budget on June 10.
Mr Modi has already hinted that there would have to be some pain and implied that the Budget could be a harsh one. But he has also shown that he understands the politics of economics by bowing to the demands of Mumbai’s suburban commuters and rolling back some of the railway fare hikes.
The circumstances under which the budget is being presented are most extenuating both from the domestic point of view and the global scenario. While former Union finance minister P Chidambaram claimed that he left the treasury well stacked the point is that he left his successor huge subsidy payments that he had postponed paying and these amount to over one lakh crore and another similar amount in the form of refunds, duty drawbacks and export subsidies etc. In short, he did a clever amount of financial engineering that brought down the fiscal deficit artificially to his lakshman rekha of 4.5 per cent and portrayed a hefty revenue estimate in the interim budget.
So Modi’s government starts with a huge handicap in tackling the fiscal deficit. This is the most important number that foreign investors will be looking at not to mention the Indian people. The other important though unpleasant thing he has to do is raise taxes for revenue to undertake development and social projects. Here it is hoped that the pain will be distributed in a more equitous manner with the rich and well off being made to bear a heavier burden than the poor. For instance the corporate sector gets rebates and incentives totalling five lakhs crore in the budget. These can safely be done away with if corruption and crony capitalism is abolished or controlled.
Mr Modi is known to be against subsidies and is for empowering people through employment and equal opportunities. Under the Congress led government, subsidies were what they used to create vote banks and amounted to little over 18 per cent of the total budget. Their modus operandi was to beggarise the population over years and then give them doles to keep them as their vote banks. This worked till a few months ago until the 2014 elections showed that the people are no longer fooled by these outdated tic tacks.
To a certain extent subsidies can be cut because it is a well known fact that out of every Rs 10 spent barely Rs 2 goes to the actual beneficiaries. So if the Modi government can simultaneously create a state-of-the art monitoring and delivery system it can make a lesser amount of money go a longer way.
Globally the scenario is not as comfortable as it was a few months ago. There is turbulence in Iraq one of the largest oil producing countries and though the price of Brent crude has come down as of today June 30 ($112 a barrel) India is still a net importer of oil. She is also a huge importer of expensive coal and both these items drive the wheels of our economy.
So, as a sort of quick fix the Modi budget would have to incentivise entrepreneurs in the alternative energy sphere whether solar, wind or biomass.
In short while Mr Modi is expected to do wonders in this budget, if he at least gives a clear road map of how he expects to tackle the huge holes in the economy and generate employment he would have presented a good budget.
