Budget 2015 : Growth with Equity
The first full-fledged budget by the NDA government is not as bold as the market expected, nor a 'dream budget' that the middle class hoped for. The budget is an exercise in restraint assuring growth with equity that befits a party of good governance.
" People who urge us," said the Finance Minister Arun Jaitley, " to undertake Big Bang Reforms, also say that the Indian economy is a giant super tanker, or an elephant, Madam Speaker, moves slowly but surely." He also stated, " Our commitment to the 'Daridra Narayan' remains steadfast, as is commitment to the Constitution principles of equality and Justice for All without concern for caste, creed or religion." These two are the keynotes of the budget. The budget has been rightly characterised as reformist, but not populist.
" Big bang reforms come mostly," observed Arvind Subramanian, Chief Economic Adviser to the Government of India, "in times of crisis and in undemocratic countries...The way I would asses the Budget is that certainly the momentum of change in reforms will continue."
The state of the Indian economy before the budget
The growth of Indian economy was stalled for the last five years due to the paralysis of decision-making process in the previous government. Rs.8.8 lakh crore worth of projects are in the limbo - public sector (Rs.1.8 lakh cr.) and private sector (Rs.7 lakh cr.). As many as 161 government projects are delayed due to land acquisition and environmental issues and also funds crunch. Similarly, 585 private sector projects have been pushed back because of environmental clearances, unfavourable market conditions and lack of promoter interest.
The Modi government has tried to expedite the decision-making process by assigning responsibility on the ministry concerned to find solutions to the land and environment issues. The budget and the amendment to the legislation on land seek to promote industry and employment without sacrificing the interest of the farmers. Many border roads which are crucial for the defense of India are inordinately delayed due to tardy clearances from the Ministry of Environment. Many power plants could not be set up due to lack of environmental clearances. Acquiring land for manufacturing has become very difficult. Tata's Nano plant in West Bengal is a well-known example of this. Many Indian businessmen found it easier to invest in other countries than in India.
The budget has many measures to kickstart the economy by offering incentives for investment and removing obstacles for both public and private sector projects.
The Land Acquisition Act passed by the Congress was based on the premise that the rapacious Big Business is depriving the poor starving farmers their land, says Lord Meghnad Desai, well-known economist and columnist. The acquisition for any purpose was made expensive, time-consuming and almost impossible. " They knew they were not coming back so this was a scorched earth policy," he observes. The Congress and its friends want to protect the landed gentry pretending that they are poor, and defending the untaxed, he adds. He also says that the poor landless labourers and sharecroppers are not affected by the amendment proposed by the Modi government but will benefit if a factory is built and employment opportunities are created. " Every country which is rich today was once poor and agrarian. It got rich by using land for industry," he writes.
In the recent broadcast to the farmers, Modi said that those who profess to be the guardians of the interest of the farmers have been using 120-year- old law to acquire farmland for the last 65 years. He mentioned that the biggest lacuna in the 2013 Act was the exclusion of 13 government activities such as highways and railways which were kept out of the ambit of the Act and the farmers would get meagre compensation on the basis of the 120-year-old law. The amendment NDA government has proposed in the Act would entitle the farmers to get four-times more compensation. Additionally, 20 percent of the land taken for development would be given back to the landowner and one member of the family would get a job.
Moreover, the amendments proposed by the Modi government were suggested to by the Congress governments in the states of Maharashtra and Haryana ( before the recent election), Kerala, Assam, Himachal Pradesh, Karnataka and Manipur as they found that it was difficult, if not impossible to get land even for public purpose after the Act. Another minister, Venkayya Naidu, revealed that 28 out the 32 states supported the amendments.
India embarked on industrialization under the leadership Prime Minister Jawaharlal Nehru to bring prosperity to the people rejecting the Mahatma Gandhi's notion of self-sufficient village republics. Factories, power stations and irrigation dams bring prosperity along with displacement of people, pollution, and even deforestation. The real challenge is to find ways to rehabilitate displaced people, pollution control and regeneration of forest, not prevent the march of industrialization. Jawaharlal Nehru had described Bhakra Nangal Dam as 'the temple of the new India' and Indira Gandhi had said that poverty is the worst form of pollution. Congress and its friendly parties have forgotten what Nehru and Indira Gandhi have said about progress and prosperity.
The agriculture in India today contributes only about 15 percent of the total GDP of the country and almost 50 percent of our people depend on agriculture. Poverty can be abolished only when industry provides employment to people who now depend on agriculture.
Bonanza for the states.
The budget also has to take into account the recommendations of the 14th Finance Commission which has increased the divisible Central tax revenue from 32 to 42 percent. The Finance Minister said that the states would get 3.48 lakh crore in 2014-15 and Rs. 5.26 lakh crore in 2015-16. The local bodies including the panchayats would be getting Rs.2.88 lakh crore during the five-year period ending on March 31,2020.
This huge transfer of revenue will empower the states as well as the local bodies in the country, and is in tune with the Modi government's idea of 'cooperative federalism'. The states and the local bodies can plan their developmental activities suit the needs of the people. The budget has also transferred some central schemes to the states.
Modi had a bitter experience of centre-state relations during his tenure as the chief minister. He is for competition between the states to attract investment and promote employment. He also knows that a vast country like India cannot have programmes designed by the centre which is always based on 'one-size fits all' concept which does not take into account different needs of the different states.
Make in India.
The budget has sought to implement the 'Make in India' programme announced by the Prime Minister Narendra Modi with many new proposals - reduction of corporate tax rate from 30% to 25% over a period of the next four years, introduction of GST ( Goods and Services Tax) from next fiscal year, reduction of tax on royalty and technical services fee from 25% to 10%, weighted reduction on wages paid to new workers by the manufacturing units, online registration of central and excise tax within two working days, e-biz portal integrating 14 regulatory permission at one point and many others. Government also proposes to introduce Public Contracts ( Resolution of Disputes) Bill and setting up of exclusive commercial divisions in various courts to settle commercial disputes speedily. Another novel feature of the budget is the concept of "Plug and Play" projects where government secures all requisite permissions for the industrialists so that they can start the project right away without any delay.
Of course, he has increased the surcharge on corporate tax by two percent on domestic companies, increased the service tax to 14 percent, increased excise duty to 12.50 percent withdrawing education cess, and added Swatch Bharat Cess at two percent to recoup loss due to concessions to the corporate sector.
Infrastructure
The budget has increased the public expenditure on infrastructure by Rs.70,000 crore over the current year with the increased allocation to roads (Rs.14,031 cr.) and railways ( Rs.10,050 cr.). The capital expenditure of the public sector going up by Rs.80,844 crore to Rs.3,17,889 crore. The proposed National Investment and Infrastructure Fund would be allowed to float tax-free bonds to invest in railways, roadways and irrigation projects.
The government seeks to auction five new ultra mega projects (UMPPs) of 4000 MW with all clearances and linkages with an investment of Rs.one lakh crore.
The railway budget has plans to invest Rs.one lakh crore in 2015-6 and about Rs.8.5 lakh crore over the next five years to be raised from the budgetary support, institutional finance,internal resources,long-term debt from domestic and overseas sources including multilateral and bilateral financial institutions and Public-Private Projects. LIC has now committed to invest 1.5 lakh crore in the railway projects in the next five years on commercial terms.The investment would be mainly on infrastructure - doubling and tripling of lines to carry more passengers and freight, improve connectivity in border areas, improve safety standards through track maintenance, manned level crossings, over-bridges and under passes, incresing the speed of trains,cleanliness and better catering facilities. If railway network in India is made more efficient and fast, it can reduce the cost of transportation and make India, a single market.
Daridra Narayan
The Finance Minister Jaitley has announced many benefits to the poor. The budget seeks to create social security system for all Indians through Pradhan Mantri Suraksha Bima Yojana which provides accidental cover of Rs.2 lakh for a premium of Rs.12 per year. The Atal Pension Yojana and the Pradhan Mantri Jeevan Jyoti Bima Yojana with many benefits to the poor. The unclaimed deposits of PPF and EFF would be used to create a senior citizen fund to subsidise premiums of pensioners, BPL card holders, small and marginal farmers.
The budget has a novel scheme for the poor entrepreneurs. It proposes to establish Mudra (Micro Units Development Refinance Agency, a bank to finance small and micro-units to encourage entrepreneurship among the SC/ST/ OBC. Almost 62 percent of small businesses are owned by SC/ST. It will have a corpus of Rs.20,000 and credit guarantee fund of Rs.3000 crore. " Just as we are banking the unbanked, we are also funding the unfunded," Jaitley observed.
The Skill India programme seeks to empower the youth of India, who constitute 54 percent of the population, and this will enable the country to reap the demographic dividend.
Other sectors.
The budget has provided Rs.7060 crore for the development of smart cities, Rs.4000 crore for National Housing Bank for low-cost affordable housing, Rs.8000 cr for rural housing, included slum development in Corporate Social Responsibility (CSR) and FDI in real estate. The middle class has been given some more tax-free allowances on health, conveyance and on savings. The real estate sector has received an impetus with the provision of funds for smart cities.
India is on the move
The wheels of the Indian economy have started moving. Speaking on the Motion of Thanks on the President's address, Prime Minister Modi said that his government is building an average of 10.1 km of highways every day as against 5.2 km a day during the UPA regime, and 410 km of new railways lines in 9 months as compared to 390 km in 2013-14 as also 700 km of gauge conversion and 585 km by UPA in the last year. He also mentioned that while UPA issued Aadhaar cards to 7 crore people in 45 months, NDA was able to give Aadhar card to additional 17 crore in months. NDA's Pradhan Mantri Jan Dhan account in the banks has crossed 12 crore giving the poor an opportunity to save along with accident insurance and an overdraft.
Government has already garnered almost Rs.Two lakh crore by auctioning coal to be shared with coal bearing states, and another Rs.One through specturm auction. The Asian Development Bank (ADB) has said that India is likely to outpace China's growth by notching 7.8 % GDP growth during 2015-16, and 8.2% the next year because of the structural reforms and 'pro-investment' policies. India would drive the economic growth of the emerging Asian economies, it observes. It has noted that the inflation is down to 5 %, and the current account balance is -1.1% of the GDP.
Modi and his band of ministers have changed the mindset of bureaucracy to be more responsive to the people and cut down the red tape. They have encouraged the foreign and Indian businessmen to invest by creating a conducive atmosphere. He has reached out to the poor with many new schemes. Modi has set in motion a silent revolution, and will change the face of India for the better in the next few years.
March 25,2015
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