NOIDA/DELHI 8 EDITORIAL THE HINDU MONDAY, MARCH 2, 2015 A framework for recovery and growth again to the rate of 36 per cent. After a decade of economic decline, wrongly To become a developed country in the fore- attributed to the global economic meltdown, seeable future, India’s GDP will have to grow at 10 to 12 per cent per year for at least a recovery and growth need a different policy today, decade. A 12 per cent GDP growth rate per year will mean a doubling of GDP every six MONDAY, MARCH 2, 2015 using a new framework of objectives, priorities, years, and that of per capita income, doubling every seven years. strategy and resource mobilisation measures. The This level of the growth rate can take us to the league of the top three nations of the Positive signals Union Budget is a serious attempt to have such world, of the United States, China and India a framework in place by 2020, and then aim to overtake China in udget-making today is a tough call the next decade thereafter. That should be a for business for a Finance Minister trying to re- the fine print of the Budget documents. Moreover, in the past, in the revenue bud- stated goal of every budget and not just a verse the past decline caused by the He has introduced many new measures, get, these expenditures far exceed the reve- “balancing the books” exercise. here are several features of Finance Minister BUPA’s policies. The Indian econo- such as a vastly increased agricultural credit nue. Thus, the revenue budget has been in Technically, this is within India’s reach, Arun Jaitley’s first full-year Budget presented my, for example, decelerated from an 8.4 per facility, the new MUDRA Bank to fund the huge deficit, and which is covered by taking since it would require the rate of investment cent growth rate in GDP in 2003-04 to 4.8 per underfunded, especially Scheduled Caste/ more loans from public sector banks and cre- to rise while productivity growth will have to in Parliament on Saturday that are notable, cent in 2013-14. The UPA’s decade of eco- Tribe entrepreneurs, tax-free bonds for in- ating a surplus in the capital account by trim- ensure that the incremental output-capital T such as the effort to widen the social security nomic decline has been wrongly attributed to frastructure development, ultra-large power ming investment allocation. ratio declines from the present 4.0 to 3.0. and pension net, the plan to severely penalise those the global economic meltdown especially plants of 4,000 MW, monetisation of hoarded In the Budget, we find this is continued Productivity increases can be achieved by holding illegal foreign accounts and assets, and the during the last six years of the decade. gold by paying interest on gold deposit ac- because Non-Plan Expenditure has risen 11 cutting transaction cost in the ease to do proposals to monetise idle gold holdings in the country. Therefore, recovery and growth need a dif- counts in banks and ease of doing business in per cent while Plan Expenditure has been business and by motivating labour with in- Yet, what stands out the most is the structural shift in ferent policy today, and require choosing a India by a digitisation of procedures. But this stagnant. In a financially healthy economy, it centives to work harder. new framework of objectives, priorities, is not enough to kick-start the economy since should be the other way around — surplus on Further, if we reduce transaction cost by the government’s attitude and approach to the busi- strategy and resource mobilisation measures Mr. Jaitley has not embedded such piecemeal the revenue account, i.e., revenue exceeding eliminating corruption, then the current in- ness and corporate sector. This is evident from propos- in constituting a budget. cremental capital-output ratio will easily fall als such as the cut in corporate tax by a significant 5 The Budget for 2015-16 presented on Sat- from 4.0 to 3.0. urday to Parliament by Union Finance Minis- percentage points, putting off the implementation of The Indian economy has declined because of the peculiar Enthusing the middle class General Anti-Avoidance Rule (GAAR) by two more ter Arun Jaitley is a serious attempt to usher “Indian ‘invention’ of a perfidious financial derivative called in such a new framework. An analysis of how This can also be sustained by directly, and years, a sharp increase in allocation to infrastructure, a far he has succeeded and what more remains Participatory Notes. not indirectly, enthusing the middle class — proposed Bankruptcy Code, an electronic bill discount- to be done for a successful turnaround is the ” which today can be achieved only by abolish- ing scheme to help the smallest of businesses to tide concern here in this article. ing personal income tax. over cash flow problems, and even a new law to handle In this Budget, the middle class has little to Participatory Notes disputes involving public contracts. Not since P. Chi- measures in the larger picture of economic expenditure, and a deficit in the capital ac- cheer about. The morning-after announce- dambaram’s ‘dream budget’ of 1997, which slashed The Indian economy has declined because reform and budgetary restructure. count, i.e., investment exceeding ment of petrol and diesel price hikes even of the peculiar Indian “invention” of that per- amortisation. while internationally, crude oil price contin- corporate tax rates and taxes on royalties among other fidious financial derivative called Participa- Looming crisis This situation however cannot continue for ues to be in decline, has only further dis- things, have we seen such a business-friendly budget. tory Notes or PNs, otherwise known as the Today, for example, there is a budgetary long because loans from public sector banks couraged the middle class. India’s middle Successive governments and Finance Ministers have crony/crooked facilitator for black money- crisis looming on the horizon because the to the government to pay for the overall def- class urgently needs some good news. considered business and industry as a sector that need- based portfolio investment. No other country allocations for major heads of expenditure — icit in the Budget have to be paid back. It will India has many advantages to achieve a ed to be kept on a tight leash using the instrument of would think of such a derivative. government employees’ salaries, pensions, require a major recapitalisation of banks to booming economy such as a demographic di- taxation. In that sense, the biggest reform measure that The Budget does not treat PNs as a time police, defence, subsidies, interests to be paid meet the Basel III norms or else the public vidend, agriculture that has internationally bomb and to seek to abolish this derivative, as for past loans taken by the government, etc., sector banks may go bankrupt by 2017. A time the lowest yield in land and livestock-based Mr. Jaitley has unleashed lies not in any of the budget the Tarapore Committee had wanted. Actual- and which now cover 98 per cent of the cur- bomb is ticking here. products, and also, by WTO reckoning, the proposals but in the changed mindset towards business ly, PNs have been even more legitimised by rent and capital account revenues accruing to lowest cost of production, 12 months a year of — the recognition that it is a major stakeholder in the enhancing their status to that of FDI inflow. government — cannot be reduced without Being futuristic farm-friendly weather, a highly competitive, economy and that its growth needs to be fostered. The Finance Minister ought to have abol- creating a political crisis. The big picture we have to usher in is an skilled and semi-skilled labour force and low So, what explains this change? The obvious answer is ished PNs in this Budget to stabilise the econ- These allocations are revenue expendi- Indian economy growing annually at 10 to 12 wage rates at the national level, the advantag- omy. I do not know if Mr. Jaitley was even tures, and hence not asset-building or in- per cent by inducing the current household es of which have already been proved to the that the BJP has always been known to be pro-busi- shown this legitimisation of PNs which is in vestments for development projects. saving rate of 29 per cent of income to rise world by the outsourcing phenomenon. We ness, especially Prime Minister Narendra Modi. So a have a young population — the average is 28 business-friendly budget is nothing surprising. But years when compared to the U.S.’s 38 years, that would only be a broad explanation of the change. and Japan’s 49 years — that is the base for it to The more immediate explanation, though, is that the CARTOONSCAPE usher in innovation in our production Budget had to support the Make in India theme of the process. Since the worldview of economic devel- Prime Minister, and what better way to attract capital opment has now completely changed, eco- and investors than by reducing taxes and easing means nomic development is no more thought of as to do business in India. The Budget goes a long way in being capital-driven, but knowledge-driven. supporting the pet theme of Mr. Modi, whose imprint is For application of knowledge, we need in- visible in other proposals too. With an estimated 12 to novations, which means more original re- search, and more fresh, young minds out of 14 million people joining the workforce every year, the the cream of youth to be inculcated with importance of increasing jobs, especially in manufac- learning and to be at the frontier of research.