Good Economics makes for Good Politics

The Union Budget 2013-14 is realistic, shorn of fanfare and attuned to the harsh global and domestic economic realities. The backd;rop remains challenging – hesitant global growth, persisting problems in the Euro zone, high oil prices, high domestic inflation, current account and fiscal imbalances and a sharp slowdown in the industrial sector.

There are no dramatic initiatives. Rather, it is about staying the course. There are no overt negative or regressive measures. The budget strikes the right balance between the often conflicting demands of fiscal rectitude, inflation, growth and inclusion. The FM has sent the right signals as regards the future course of reforms. He has also unequivocally articulated his commitment to restoring trust and confidence among entrepreneurs and investors and reducing the obstacles to doing business in India. At a time when business confidence needs to be revived, this is indeed reassuring.

The FM struck a positive chord by setting the objective of getting GDP growth back to the 8 per cent range over the medium term, up from 5 per cent in the current year. He has rightfully stressed that inclusiveness can be brought about only by increasing the size of the pie, and that means more growth. He is aware of the need to capitalise on the demographic dividend, by giving opportunities to the youth. The way forward on this is education, including greater access to vocational training. The FM has also given women empowerment and gender equality a more prominent place in the agenda.

The priority accorded to growth is evident. Several large infrastructure initiatives have been announced, among them major extension of the inland waterway grid and two new major ports. More industrial corridors will be set up, and a new regulatory body will be set up for the road sector to facilitate faster implementation of road projects.

A major push is sought to be given to the high tech sector, by promoting the manufacture of semiconductor fabrication units. Domestic coal production also stands to get a boost from the move to permit Coal India to partner with the private sector companies. The oil and gas sector is also being given a booster dose, through shifting from profit sharing to revenue sharing, faster clearances for exploration blocks, resolution of pricing issues and development of shale oil resources. The all-important mass housing sector also stands to benefit from the additional incentive being provided for first-home purchases.

The bringing back of the investment allowance will certainly help in promoting investment activity. The mobilisation of long-term funds will be facilitated by the moves to set up more infrastructure debt funds and increase in the issuance of tax-free bonds. Also welcome is the move to increase the role of the post office in efforts to mobilise savings.

There are some measures aimed at reviving the capital markets, particularly the debt segment. There is a major emphasis on stepping up FII and FDI flows, and both these are considered critical to reining in the current account deficit. The budget has provided clarity on the distinction between FII and FDI investments.

To steer the economy to a high growth track in the face of inflation, fiscal deficit and external imbalances, is a formidable task. But the FM has a credible track record to fall back on. So there is the sense, the confidence that he will deliver, this time around also.