Modi Budget dodges disinvestment bullet
by Sandhya Jain on 15 Jul 2014 4 Comments

Union Finance Minister Arun Jaitley’s maiden budget is remarkable for blindsiding economic gurus of national and international stature with gratuitous advice for a ‘closure sale’ of the public sector. It invited the private sector to step up and contribute to economic growth, but did not bend over backwards to solicit their hitherto feeble performance. The salaried middle class got some sops but no one complained once the dire warnings of punitive taxation by know-it-all Cassandras did not materialise. Given the challenges of a dire economic situation and the short time available in which to consult with stakeholders, the exercise is creditable.


The ‘Hindu rate of growth’ under Jawaharlal Nehru and his successors is nothing to applaud. But we may recall that the State was forced to seize the commanding heights of the economy by creating the public sector behemoth when Nehru discovered to his chagrin that the great captains of industry were unwilling to invest in heavy industry which was critical to industrial growth; they wanted quick returns from manufacturing consumer goods which would sell because of heavy duties on imported goods. This is the genesis of the mixed economy. The milking of the public sector by the political-bureaucratic class and the inspector raj that bedevilled the lives of traders, businessmen and industrialists completes the picture.   


Those doubting the veracity of this brief summation have only to recall the newsprint crisis that plagued the print media in the last quarter of the twentieth century, before the electronic media explosion. When a hue and cry broke out after the duty on imported newsprint was raised, it was discovered that despite several nudges from the Government, the great media barons had simply refused to manufacture newsprint domestically. The miniscule amount that was produced locally was wholly inadequate.


Some reputed industrial houses of the post-independence era owed their wealth and eminence to sweetheart deals with the British Raj, now called crony capitalism; we now need greater transparency on this front. The economy has been liberalised from the time of PV Narasimha Rao, but six months after every set of reforms there is a clamour for more. Profits are posted, the share market rises, but the flip side is jobless growth for two decades.


Real jobs and economic growth were provided by retail traders and small & medium industries (SMEs) that comprise the backbone of the manufacturing sector. Instead of allowing big banners to suck up the loans and incentives, this sector deserves creative support from Government. The Prime Minister’s dream of making India a manufacturing hub, of small towns emerging as hubs for manufacturing or IT services can only be realised by empowering this sector.


Some are dismayed at the 49 per cent cap on FDI in defence, insurance and urban housing; but for many the retention of Indian control in these sensitive sectors is imperative for national security and citizens security. Before quibbling, the private sector should rise to the challenge of the public-private partnerships (PPP) on offer. Alternately, the Government may find tax-free bonds for individuals (not corporates) a promising way of raising funds for infrastructure like roads and railways. A ceiling of Rs two to five lakh per individual could kick-start the modernisation of both while keeping Government debt manageable. This would also take the edge of middle class disappointment with the budgetary sops.


Railways being the country’s largest employer could think of innovative means of expanding self-employment along the tracks, such as timber plantation on vacant lands, sanitation, electricity through solid waste of which ample amounts are generated daily, food catering, and so on.


Much remains to be done, and will hopefully be addressed in the budget of February 2015, which will truly reflect the vision of the new regime. After concerns expressed over the steep decline in cattle (cow and buffalo) wealth, which is ruining farmers and agriculture, one expected an end to the meat subsidy and the Pink Revolution. For individuals to eat meat is one thing, but for India to give meat the status of industry and boost sales through export subsidy is a civilisational monstrosity. The Government must also outline explicit plans for saving native breeds of cow. With scientific studies showing the superior nutritional value of milk from domestic breeds as opposed to imported ones, a rethink of official policy is overdue.


Then, there is the issue of black money which has been worrying citizens on account of the sky-rocketing corruption of our political-bureaucratic elite and crony capitalists. The budget has not touched the issue of curbing the parallel economy (some new rules actually promote inspector level corruption, though this is not the subject of this article), and bringing back the huge funds stashed in tax havens abroad.


There are many ways to curb this menace once and for all. One is an amnesty scheme in which funds in multiples of Rs 10 crore can be invited to return, no questions asked, and invested in infrastructure bonds. This could be launched after the SIT examining the issue submits its report to the Government. Thereafter, the Government can ‘nudge’ the return of capital by allowing foreign banks to appropriate the wealth of Indians stashed abroad illegally after a certain cut-off date. It would be a rare bank that would refuse the offer, and the account holders would have zero redress in the courts of any nation. This will effectively curb the impulse to send money out of the country illegally. Of course, the Government must ensure that citizens can generate and keep wealth inside the country with honour and dignity.


Then there is the issue of costly politically driven schemes like MNREGA that have failed to help the poor and have generated untold corruption. The move to link these with genuine asset creation at ground level (watershed schemes, village roads, wells, tree plantation) is a step in the right direction. The block development officer must be held responsible for misuse of funds in future.


Two terrible initiatives of the Narasimha Rao regime need a serious rethink. One is MPLADS, which has only generated corruption and contractor-driven development. The second is the exponential growth of NGOs that have been richly funded by the State to share its developmental responsibilities, with poor returns. NGOs tasked with grassroots delivery of Government schemes should be re-designated as service sector and made to account for work done. 

The Pioneer, 15 July 2014

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