As far as I am concerned, the tensions in the pre-budget days this year were similar to the level of excitement generated before the Brazil-Germany semi-final. While the football game result came as a shock to everyone, the budget speech was no less of a shock to me. Note, I say the budget speech, as opposed to the budget. The finance minister was, often, inarticulate and, most importantly, never laid out the thought process that had gone behind the budget. It was necessary to do so because there were enough pre-budget tremors warning us of having to tighten our belts to revive the economy. In other words, everyone was expecting to be told what the new government’s plan is to bring the economy back on track and how this budget is the first step in the implementation of that plan. The finance minister, unfortunately, did not describe, even in passing, what the plans were and fell back on the established and boring template of listing all the 100 crore ideas that the ministry has come up with, mixed up with all the other good ideas that are there in the budget. It was, indeed, a surprise that no one dozed off and fell off their seats in Parliament!
Nevertheless, a closer reading of the budget suggests that it is a good one. We are facing a drought year and the youth remain unemployed or on the look-out for more productive jobs. The budget has addressed this by focusing on infrastructure projects and on tourism. Both of these are labour-intensive projects and the employment they generate cut across varying levels of skill. Of course, infrastructure projects have never taken off as they were intended to in the past. The finance minister, however, started by referring to the lack of decisiveness in the earlier government and his government’s commitment to correct that. He has also given a tax holiday for the next 10 years in the power sector, an investment allowance for those investing more than 25 crore in any of the next three years and offered to promote start-ups especially in rural India. In addition, he has reduced and rationalized various indirect taxes to boost domestic industrial activity. For creating jobs immediately, it is imperative to make manufacturing grow. And all of this should be able to do that.
One other job creator is the construction industry. The construction industry, on the other hand, required changes in the real estate sector. The initiatives referred to in the budget will give a big boost to the real estate sector and that is good for the construction sector. This creation of non-farm employment opportunities is especially important during what could be a possible drought year. This is reinforced by the boost to the housing industry. The renewed focus on road construction will bear fruit only if these are put on fast-track mode and the current government has made a commitment to do precisely that. Road connectivity not only opens up new markets for labour and small producers but also generates entirely new activities.
Imagine the huge amount of money we spend each year on defence. Now imagine the same amount of money being spent not on importing equipment from abroad but on making them at home and buying them from domestic producers. This too will have a huge positive impact on job-creation. Of course, this requires technology and the budget has increased the ceiling on foreign direct investment for such ventures.
I was delighted to hear that the government is committing to new AIIMS-style hospitals in every state. He mentioned this immediately after announcing four new AIIMS and 12 new medical colleges. We need more quality hospitals where the poor have access and having only one in Delhi is not the best way of achieving that. He has talked about sanitation and drinking water, both important for preventing health problems. And he has imposed a fine (through increased taxes) on smokers and other users of tobacco. I hope he earmarks this increased revenue to spend more on preventive healthcare. If we assume that this government is committed to implementing what it promises, then the 15 medical research centres that will investigate local ailments and try to find their cures should have important and immediate impacts.
In this context, it was good to see that the finance minister has tried to geographically distribute the resources. A big problem in India is that most of the ‘good things’ go to the big cities while other regions are left largely untouched — they are either not allocated resources or, even when they are allocated, the resources never reach their destination. The announcement of Metro trains in Lucknow and Ahmedabad are a good deviation from announcing them only in the metropolitan cities. However, I hope that these projects in these two cities have nothing to do with Vajpayee and Modi, and we will get Metro projects in Patna and Bhopal also. Indeed, this brings me to one disappointment in the budget. The focus on developing cities and re-generating them is a wonderful idea and all power to those who want to promote higher degrees of urbanization in India. However, I was a bit surprised at the focus on ‘smart cities’ before any statement on public transportation. Most of our tier I and tier II cities do not have any state-funded public transportation systems; even in big cities they are mostly corrective attempts (like the Metro projects) when things come to a head. Good public transportation not only integrates people, nor only does it support economic activity by reducing energy costs and the import bill, but it also addresses problems of local pollution and global climate change. I am disappointed that in a budget speech where climate change is mentioned at the very outset, allocation for public transportation is restricted to two Metro projects.
The finance minister announced a price stabilization fund for agricultural produce. Though it is a great idea, I am a bit worried given an earlier experience. There is such a fund for stabilizing prices for plantation crops like tea, coffee, rubber, spices and tobacco. It is essentially a subsidizing mechanism for plantation growers when export prices crash. In other words, it is a sophisticated method of implementing a minimum support price. I sincerely hope that the fund proposed by the finance minister will use market mechanisms to help farmers transfer the risk to those who can bear it rather than reduce the risk to farmers directly by offering minimum support prices.
There are a lot of good things in the budget but none of them has been emphasized in the budget speech. Instead, the finance minister seemed to have deliberately chosen a path of hiding the good things and following the usual template of reading out a grocery list. Such an approach works if the minister had some ‘headline’ surprises. It would have been so much better if the minister had started by saying that this is a budget for job creation through making it easier to do business in India, through boosting infrastructure and through alleviating the general feeling of gloom and doom among investors. One can only put it down to either one of two possibilities: the minister had a bad speech-writer, or this was a nervous debut innings and the next time the minister will show more confidence in what he is suggesting.