India’s finance minister Nirmala Sitharaman has finally arrived! As she was making the announcements of the union budget in the country’s parliament, India’s stock market shot up by a whopping 2315 points — breaking a record of more than 22 years. The bullish markets were cheering the government’s financial plan as if the budget was made in Mumbai — India’s business and commercial capital.
India’s union budget 2021-22 is all about Modi government’s heavy spending — on highways, railways, vaccines, water supplies and health. While not many direct tax benefits have been given to middle class families but the fear of a post-covid tax is gone. There was a collective sigh of relief.
Chief economic adviser K. Subramanian opines that the heavy spending in the infrastructure projects would create thousands of jobs for the poor. The budget has promised creation of 1.40 lakh jobs in the central government alone — within a year.
If — and it is a big if — the budget is implemented efficiently it will give Nirmala Sitharaman an opportunity to be the first Indian finance minister to take credit for a double digit growth of the national economy.
She has the Prime Minister’s blessing. Narendra Modi and his team has expressed tremendous political confidence through the budget.
Team Modi has pegged a real GDP growth at 10% to 10.5% in the coming year. This is as positive as any government can get. That too after facing the economic disaster in the financial year 2020-21 due to the pandemic.
Will India perform this economic wonder?
“In politics, economy and cricket timing is everything. Even the most difficult things — done at the right time — works,” a Cabinet minister of the Modi government told Gulf News. The best economies of the world knows that better infrastructure is key to all round growth. Already, tax collection has improved. Covid fear has gone and vaccines are here,” he noted.
This budget has been seen by many analysts as a “reform budget within status quo” meaning its big bang announcements are not reckless. It retains the old framework of the Indian economy’s management of fundamentals.
The senior cabinet minister forcefully put it, “Prime Minister Modi has announced through the budget that I am investing big way in creating infrastructure. He is betting on the public investment that the government has promised. The message from the prime minister to foreign investors and India’s private entrepreneurs is: “be my partner in India’s growth.””
Interestingly the budget’s most talked about feature is the government’s hunger for growth that has allowed fiscal deficit to touch 9.5% of GDP this year. The higher spending was a must to give a timely boost to slowly recovering economy.
Perhaps the time is right for Modi government to take risks. Talking about rising debt levels that runs the risk of a being a drag on economy Abheek Barua, chief economist of the HDFC Bank has said in his column that, “This gamble was not for the faint-hearted.”
By all accounts it appears that the Modi government is not rattled by the ongoing farmer’s agitation or criticism of the opposition parties that alleges now and then that in last few years crony capitalists have prospered.
Actually, Modi has intended to do something that no other Prime Minister has dared to do in last couple of decades. In 1969 Indira Gandhi, influenced by her left-leaning advisers, had nationalised banks to acquire political aura and take the grip of her divided Congress party.
Lately, many nationalised banks, with few exceptions, have underperformed and are seen as a burden on the system due to corruption in lending loans. Modi has declared in the budget that his government will privatise two banks, offer public issue of the blue chip public sector LIC and raise the foreign direct investment limit from 49% to 74% in the insurance companies.
These are bold reforms but they raise an important question: Does Modi have the political stamina to achieve his goals?
Since 2014 the right-wing voters of the Bhartiya Janta party were wondering why Modi isn’t displaying his business sense that he showed as chief minister of Gujarat?
In Gujarat he gave boost to entrepreneurs and protected the middle class by non-obstructive governance. But, in Delhi he was visibly more engaged in winning election after election.
Big bang announcements
Modi’s budgets, so far, were broadly conservative and had deep imprint of the bureaucrats but this year is different. It is a budget with big bang announcements where he talks about the privatisation or monetisation of the government assets. This budget was prepared by many experienced hands working under Nirmala Sitharman.
This budget and its targets will certainly invite the strong opposition as it is happening in the backdrop of the new three farm bills.
Punjab Chief Minister Amrinder Singh has already made it clear that his party will oppose any move to sell ‘family silver’ of the country. He taunted the government that the sale of the assets to pay the salaries, even if done under distress, can hardly be called Aatmanirbharta (self-reliance). On the budget day, PM Modi and Sitharaman has re-emphasised on the new mantra of self-reliance.
With absolute majority of the ruling coalition in Lok Sabha, strong backup of the party and popularity of Modi, several proposals of the budget are doable but the mishandling of the ongoing farmer’s stir is the apt example that in India “ifs and buts” are sure-shot elements of the game.
Sitharaman explaining her position invoked Rabindranath Tagore while delivering the budget, saying, “Faith is the bird that feels the light and sings when the dawn is still dark.”
The Indian dawn is here. Hopefully.