Arun Jaitley is a powerful man. It is a measure of his power and his proximity to Prime Minister Narendra Modi that despite losing the Lok Sabha elections, he was given charge of three ministries: finance, defence and corporate affairs.
For someone with that heavy a bat, it really would not have been that difficult to push through a decisive Budget even with just 45 days in hand after he was sworn in. But Jaitley chose to present a Budget that looks tame in the context of what is needed to propel the economy forward.
There are two ways to look at his and Modi's deliberate choice. One, Jaitley is keeping his powder dry for what could be a very tough year ahead for the economy. By now, the confirmation of a scant monsoon is all but in. Not only will we have sub-normal rainfall, its spread across the country will also be patchy. This means large parts of India will officially be declared drought-hit in the coming weeks and months. For a new Prime Minister who likes to roll up his sleeves and wade into a situation to take control of it, that will mean he will want all resources at his command - note that the food subsidy stays high despite low visibility on implementation of the Food Security Act. Also, the state elections in Maharashtra and Haryana pose political compulsions in cutting back on subsidies. All this indicates that the strategy is to ride through tough months, get some momentum going on the economic front, and be ready for a Big Bang Budget come February 2015.
That is one explanation for what came across as a lacklustre Budget on July 10. The other is that the Modi government believes the Budget is the first one in a string of 10, not five, NDA Budgets (not including the interim ones). The bet being that the BJP-led coalition will be re-elected at the end of its term in 2019. Viewed from that prism, a "less is more" approach to its maiden Budget this term makes sense: set in motion a few changes that will nudge fresh capital investments, unveil other changes that indicate the direction in which the government wants to move in, and make bets with some changes that could be multi-baggers.
For instance, setting off 15 per cent of spending on plant and machinery above Rs 25 crore against taxes will incentivise those sitting on the fence, especially among medium-sized businesses. Likewise, the tax holiday for power producers and changes in import duties on coal give clarity to businesses putting money into projects. Budget proposals like setting up a national market for farm produce and new warehouses for storage show the direction in which the government wants to move to nix supply chain gaps. As also, opening up defence manufacturing for foreign investment shows the intent in that direction with further reforms possible in future. But the big thrust in the Budget is the support the Modi government is pledging to start-up entrepreneurs and small businesses. It is yet not clear how the Rs 10,000-crore fund to support entrepreneurial ventures will be structured, but there are several models in the world, like the one in Israel, that India can emulate from. Tax collections from new businesses may not add up to much, but the potential for capital accumulation among millions of entrepreneurs and the propensity to distribute it is high.
Much of what we saw in Jaitley's Budget - and before that the railway Budget and the Economic Survey - will take time to play out and he and his boss, Modi, believe time is on their side. We bring you our analysis, panel discussion and columns on the Budget.
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