Union Budget 2014 was short on vision with very less to offer for economic reforms

Laveesh Bhandari

This Budget needed to get a grip on inflation, accelerate growth, restore trust in the government and build confidence in the economy. It does a bit of all, but only tentatively. In a word, the Budget is disappointing: Much talk and a lot of small measures, but little to show by way of major initiatives. It seems the team of Prime Minister Narendra Modi and Finance Minister Arun Jaitley has decided to wait it out till next year by when the NDA Government would have greater experience. India is looking for a grand vision, and actions to go with it. We need leaders at the helm who have conviction and are not afraid to take bold decisions. Such leaders would have convinced us that this is the time to chart a new path for India to shape a great future for our children. Instead, we have got a budget put together by people unwilling to take hard decisions. They may have tried to please all or displease none. But all they have achieved is more of the same, with some extra bits thrown in here and there.

Charting a reform path

Jaitley's Budget speech and statements do, refreshingly, identify the direction of reform we can expect in the coming years. It grants that getting the manufacturing sector back on track requires a more credible financial regulator,basic labour reform that ensures flexibility for the employer as well as protection for the worker, skill development and access to basic finance for the small and medium entrepreneur (SME).At the same time, the Budget recognises that India needs to change the regime defined by APMC (Agricultural Produce Market Committee) acts and give the farmer unhindered access to markets anywhere in the country.The recognition that publicprivate partnerships are not delivering and need to be reoriented is welcome.Combine this with improved access to finance for SMEs, including addressing the issue of insolvency law, and we get a clear outline of the direction NDAintends to take the economy in.

Rating: Good

Setting inflated targets

The Budget aims for very high growth in tax revenue in an economy that is not growing very rapidly. At the same time,budgeted expenditures are not as high as one would normally expect in a drought year. Based on this, it manufactures a fiscal deficit target of 4.1 per cent for 2014-15, which it will no doubt fail to achieve-the figure will instead be around 4.6 per cent by the end of the year. It seems that Jaitley's predecessor P.Chidambaram,with all his numerical skullduggery, is still lurking somewhere in the background. Numbers aside, the Budget also lacks a clear action plan to correct the problem of burgeoning subsidies. India's subsidy regime, which is aimed at benefiting households, needs to be changed-from incentivising consumption to encouraging investment, and from focusing on leakage-prone items to those that can be better targeted. But we see none of this in this Budget. Neither do we see any change in the subsidy regime that is oriented towards the productive sector-say for the farmer or the SME entrepreneur- but is not very effective.

Rating: Bad

Inadequate reform of PSUs

Alarge chunk of the Government's assets is locked up in an unproductive public sector. Therefore, a comprehensive set of public sector reforms combined with large-scale privatisation and disinvestment would have been great. Instead,we will get about Rs 58,000 crore from disinvestment this fiscal. This is a good move but could have been better had some thought gone into what all would be possible to disinvest easily. Both internal and external security have received higher allocations, which is a good step since these have been ignored for years.Greater focus on the North-east was long due and is, thus, laudable.Yet, there was much more that needed to be done in these areas and we can only hope that this is just the start.

Rating: Average

What lies ahead?

The Government has tried to do a little of many things in this Budget and decided against going for big-bang announcements. But then this is a relatively inexperienced team and, perhaps, Modi and Jaitley are giving themselves and their team more time to get better at their jobs. In which case,we have to wait for Budget 2015-16, when they could come out all guns blazing on reforms.Let's hope it is so.

Laveesh Bhandari
Economist and head, Indicus Analytics

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