Did Arvind Subramanian mess it up for Arun Jaitley?
Shweta Punj February 27, 2015In the many Budgets one has reported on, the excitement for the Modi-led government's second Budget and the first full Budget is one-of-a-kind.
There is always a tendency to draw a comparison between the 1991 Budget that liberalised the Indian economy and the 2015 Jaitley Budget that could usher in a renaissance for the Indian economy.
So, the economic survey bravely talks about the 'big bang reforms' and the government's political capital to see them through. It talks about India returning to double-digit growth and increased public spending especially in infrastructure - indicating a structural shift in policymaking - which over the years had become increasingly dependent on private enterprise to drive growth.
"As the new government presents its first full-year Budget, a momentous opportunity awaits. India has reached a sweet spot - rare in the history of nations - in which it could finally be launched on a double-digit medium-term growth trajectory.
This trajectory would allow the country to attain the fundamental objectives of "wiping every tear from every eye" of the still poor and vulnerable, while affording the opportunities for increasingly young, middle-class, and aspirational India to realise its limitless potential," states the survey at the very outset - setting the tone of extreme hope and optimism in the days to come.
But how does that stack up for the finance minister who will present a statement of accounts for an economy that is still not out of the woods? The last few months have seen frenzied activity.
The survey lists banks being allowed to raise capital from the market to meet capital adequacy norms, the Pradhan Mantri Jan Dhan Yojana for universal access to banking facilities, actions taken by RBI to deal with NPAs - ease of doing business has dominated almost every address of the Prime Minister - yet investment growth has been painfully slow. The survey alludes to subdued private investment.
So, while the opportunity might be historic to present a vision statement for the next decade, but in terms of fiscal math the possibilities to carry out 'big bang' decisions are somewhat constricted. Centre's gross tax receipts as a percentage of GDP had risen steadily from 8 per cent in 2001-02 to 12 per cent in 2007/08 before declining.
It is expected to go below 10 per cent in 2014/15. To implement the recommendations of the 14th finance commission of higher public spending, which the survey makes a strong case for, and increase tax devolution to states, the need to increase tax-to-GDP ratio is especially significant.
On the expenditure front, the Budget will have to detail out a roadmap for direct cash transfer in kerosene, foodgrain and fertilisers, and ensure there is a credible plan and model for subsidy reduction.
Historically, finance ministers have seldom followed the advice of economic surveys, but this survey has really made it impossible for the finance minister to not come out with a 'big bang' Budget.
Good politics is usually setting the expectations low and delivering beyond, but this government has once again set the stage of mounting expectations - one must remember that with great expectations come bigger disappointments.
Here's wishing Mr Jaitley the very best of luck.