Finance Minister Jaswant Singh has scored a century on debut. He should have scored a few more runs to make certain the country wins, but he has done enough to ensure a high probability of success. And as a welcome change, he did not try to be a batsman, pace bowler and googly expert all at the same time.
The only reason he got out earlier than he should have, is that he did not go all the way on the recommendations of the Kelkar committee report pertaining to taxation of individuals and corporates. That, presumably, he has left for another innings.
If you had taken a survey prior to February 28, both from the Left/parivar as well as the Right economists, they would have said that the rich should be taxed at a higher rate (they will be, although I believe this is a misguided moral technocrat view); they would have advocated tax exemptions for infrastructure, health, education and housing, and all have been provided; they would have recommended that tax rates be kept high for the corporates, advice which has also been heeded.
Now for one striking difference with the Left/parivar view. The recommendation that scam (also known as small) savings rate be reduced from 9 per cent to 8 per cent does not fit well with the view that the savings rate is negatively affected by declines in interest rates, or that scam savings, worth Rs 100,000 crore (Rs 1,000 billion), deserve more sops.
But what about the fiscal deficit, the tired refrain of every middle economist. It remains stuck at 5.6 per cent of GDP, and a consolidated center-state deficit of 10 per cent plus. A high number, but not appreciated by most deficit Talibans is that this has been the case for the last twenty years! So what should be done for the long term health of the fiscal deficit? That revenues increase faster than expenditures, and this Budget does make some headway on that. This is a growth budget, make no mistake about it. So the deficit will, all other things be equal, be restrained.
Further, little emphasised by the instant TV experts, is the desirable policy of swapping the states out of their high interest bearing debt (incurred when small savings rates were 12 plus per cent just a few years ago) and inducing them to borrow from the market. This will help rein "free" state expenditures and a subsequent reduction in state deficits.
Add to this heady brew the strong possibility that the world economy will emerge from its slumber over the next year, and that oil prices are likely to be close to $25 in the next few months, and what you have is a growth rate that rises northward of 6 per cent and a fiscal deficit that finally begins to go southward below 5 per cent.
There is a commonly expressed view that a budget is not an economic document, but rather a political tool which can be manipulated to win elections. And that Jaswant Singh's budget is the quintessential political budget, hence the "sops" to middle class voters. This view assumes that our politicians are brilliant beyond even their own imagination; an implication of this hypothesis is that we would still be ruled by the Nehru-Gandhi family and continue to be ruled as far as the eye can see or (some) hearts can fear. Thankfully, that is not the case, and equally thankfully, the budget cannot be manipulated, any more, by electoral concerns.
The reason not is because globalisation pressures on policy makers are substantially greater than those emanating from either feudal politicians or feudal and/or monopolist corporates. The pressure of globalisation means that policies have to be formulated with the health of the national economy into account, not the pocket-books of powerful interest groups. One consequence of globalisation pressure is the simple reality that there is not a single economic policy that anybody can recommend for India which has not already been thought out, a committee been formed, and relatively wide acceptance achieved.
This is a tribute both to the pressure of the Chinese bamboo, as well a tribute to our policy makers who have been extremely pro-active ever since Manmohan Singh launched an attack on the Left/parivar order in 1991. The same, unfortunately, cannot be said about our politicians; hence, implementation is a major concern. What should be done is known; when is the perennial question.
This is where Jaswant Singh's budget is brilliant. It is not a-political, but it also contains a lot of good economic sense. It will help the economy, it will help growth, it will help employment. It might also help the BJP win elections -- but that will have a lot to do with the mistakes that the Congress party, and its leadership makes, than with any brilliant fine-tuning on the part of the BJP.
All said and done, this Budget is likely to add about 0.5 to 0.75 per cent to our growth rate. Interest rates should come down, and the spread between corporate and government rates should decrease. The stock market should improve, both absolutely and relatively to other emerging (and developed) markets. It also sets the stage for future reforms, particularly of the Kelkar kind. Think about it -- with growth, it is easier to remove unnecessary exemptions; with continuous discussion and transparency, it is easier to get rid of lobbying interests and reduce corruption.
What more could the FM have done? He could have tuned in considerably more to Kelkar, and decreased scam deposit rates by an additional 1 per cent.
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