The Centre’s game plan, as revealed by the Budget, is all about sustaining growth. But fixing implementation is the crucial next step
Before Finance Minister Pranab Mukherjee presented the Union Budget for 2011-12, many political observers felt that he may just use it as an opportunity to shore up the government’s diminishing equity. Others expected some big-ticket reforms to indicate that the government had recovered from the sting of a series of scams and meant business worthy of the mandate people gave it two years ago.
Belying either expectation, Mukherjee laid out plans to simplify the administrative machinery and improve economic efficiency to prepare for the big ideas that could come later. If everything goes according to plan, a unified goods and services tax for the entire nation and a brand new direct tax code would become a reality; each citizen will have a right to food and perhaps even have health coverage, well in time for the 2014 elections.
The Budget, both by what it announced and what it did not, reiterated a guiding principle that the United Progressive Alliance (UPA) has articulated over the past couple of years — preserving growth momentum is paramount. And it will rely heavily on private investment to pull it off. UPA, by its own admission, had come back to power with the mandate of ‘inclusive growth’. However, each of the three budget speeches in UPA-II list ‘sustaining high growth’ before ‘making development more inclusive’ as priority.
“There has to be growth before there is inclusion. Without growth there cannot be any inclusion,” says one senior official in the Prime Minister’s Office. This budget clearly shows which side of the debate the government has flipped for. It promised to cut spending, even on some of its flagship social welfare plans (such as the rural jobs guarantee scheme) and subsidies, preferring to tighten its finances with a stiffer fiscal deficit target of 4.6 percent (of the GDP) as against a previous target of 4.8 percent for 2011-12.
In Favour Of Growth
The growth versus development debate has been engaging some of the best minds, as India continues to battle growing inequality and persistent poverty despite fast growth.
Worldwide audiences were captivated recently when top economists and thinkers from across the world inconclusively yet hotly debated India’s growth story in an online forum. Economists such as Jagdish Bhagwati and Arvind Panagariya argued for pro-market reforms as they saw growth as an effective and primary tool for alleviating poverty. It also allows governments to have more resources to bring about redistributive justice, they said.
“We have deliberated for long the modalities of implementing such subsidies. The debate now has to make way for decision,” the finance minister said while announcing the shift to the new subsidy regime. Some other reforms like foreign direct investment in retail remain in cold storage waiting for the right moment as the prime minister does not like to force issues since he believes it could hurt their sustainability.
The government is also aware that since the year 2000, the Indian industry has increasingly faced a shortage of skilled labour. People like T. Muralidharan of the TMI Group that helps unemployed youth learn job-earning skills believe the government is headed in the right direction.
(This story appears in the 25 March, 2011 issue of Forbes India. To visit our Archives, click here.)