Ambitious Indian budget hopes to get national economy soaring

By K.S.Venkatachalam Source:Global Times Published: 2015-3-5 23:48:03

In the recent issue of The Economist, the lead article "India's chance to fly" focuses on India's opportunity to become the world's most dynamic economy. Finance Minister of India Arun Jaitley set the tone of his presentation of the Union Budget by borrowing the title. It is the first time the finance minister has moved away from focusing on balancing the budget to setting a vision for India in the coming years.

He has taken some bold steps by reducing the corporate tax from 30 to 25 percent, a courageous move in an environment where corporations are viewed with suspicion, because of crony capitalism. This is seen as a clear signal to help foreign investment in India.

Some of the key drives for the economic growth are the special focus given to infrastructural development, the return of stolen black money to India, and doing away with "tax terrorism," where the previous government had introduced retrospective taxation, especially on Vodafone, which led to an outcry from foreign investors.

Jaitley has allocated 70,000 crore ($11.24 billion) to the infrastructure sector. This amount will be spent on building modern roads, ports, and modernizing railways. One of the main hurdles for foreign investors is the controversial land acquisition bill. The opposition parties are vehemently opposing the bill as, according to them, it jeopardizes farmers' rights. But if India is to emerge as one of the world's top economies, no progress can be made without acquiring land for various infrastructure projects. It will be a real challenge for the government to bring all opposition parties on board.

China, which has pledged $20 billion to reduce India's trade deficit by investing in two industrial parks in the Indian states of Maharashtra and Gujarat, can play a big part in participating in various projects like the modernization of Indian railways, using its expertise to help set up power projects and other similar ventures.

The government also wants foreign investors to set up manufacturing hubs in India to produce defense equipment. Other notable feature of the budget is that it addresses various critical issues facing the country like housing, education and healthcare, social security and farm credit.

However, the fault line in India has always been large-scale corruption at all levels. It is for this reason that the money allocated in welfare schemes does not reach the poor.

One of the banes to the rapid progress of the Indian economy is poor execution of projects, leading to huge escalations in costs. The delay in execution is primarily because of difficulties in acquiring land, and the delay in getting forest and environmental clearance. Public interest litigations filed by NGOs and activists, and stay orders given by the courts, especially in the matter of land acquisition, have stalled many projects. It will be a Herculean task to overcome such hurdles. The Modi government will have its hands full in surmounting these problems.

Ruchir Sharma, author of Breakout Nations: In Pursuit of the Next Economic Miracles, has disputed the claim of the Indian government about the economy growing at 6.9 percent. He believes the numbers don't add up. According to him, "every piece of data points to a much lower growth figure, probably closer to the old estimate of 5 percent."

In the international financial community, few had questioned the veracity of India's economic numbers until now. This is a serious comment from one of the world's leading analysts, and needs to be looked into, as India's credibility will be in question otherwise.

The present government, which enjoys a popular mandate, has a decisive leader known for taking crucial decisions. Modi, unlike his predecessor, is not limited by political compulsions.

While he is certainly pro-business, he will not spare any efforts in bettering the lives of the poor. His introduction of a national pension scheme to guarantee pensions to poor farmers and people living in abject poverty is one such example. But balancing these concerns and allocating resources appropriately will be a tough task, even though this budget is a welcome step forward.

The author is an independent journalist in India and a member of the academic council of Chanakya Institute of Management Studies & Research, Mumbai.

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