Start up and smell the coffee

Kumar Mangalam Birla
03 March 2015
The Economic Times

The burden of expectations on this government’s first full-year Budget was extraordinary for two reasons. One, the strong electoral mandate provided no alibi for inaction due to ‘coalition compulsions’. Two, the fortunate fall in crude oil price provided a hefty stimulus gift to the Indian economy. What had to be balanced against these expectations was fiscal restraint, and legitimate spending for protection to the poor and vulnerable.

The finance minister was also expected to provide a big impetus to infrastructure spending. On these fronts, the Budget does splendidly. It has set the stage for a multiyear high and sustainable economic growth, which can also lead to resource generation for the social and infrastructure sectors. In addition, the FM has also been careful to aim for a fiscal deficit target of 3% over a credible timetable of three years. He has done all this without the proverbial ‘big bang’, in the spirit of continuous, persistent and progressive economic reforms.

There are several growth-inducing measures. These comprise financial sector reforms, steps to improve ease of doing business, and a substantial push to infrastructure. In the financial sector, an important step is strengthening the lenders’ rights, and hence, bringing larger non-bank finance companies (NBFCs) on par with banks. This will increase the reach of NBFCs and also help those borrowers who may not be able to access bank credit.

The various proposals to monetise gold will unlock substantial financial resources for growth. There are several incentives for long-term savings in the form of pensions and infrastructure bonds. Important steps have been announced making it easier for foreign investment inflows to fund growth in India.

For ease of doing business, the FM seeks to remove the maze of multiple prior permissions with a new regulatory system. There’s a special focus on youth and start-ups. In the coming years, the largest chunk of job creation will be from small businesses and start-ups, and it is imperative to free them from the stranglehold of red tape.

The small and medium enterprises (SMEs) face a challenge of financing their working capital. To this end, the Budget has introduced the system of an electronic market for trading the receivables of SMEs, potentially releasing them from funding constraints.

On infrastructure, sharp increase in outlays on roads and railways will crowd in, rather than crowd out, further private investment. The bidding out of ultra mega power projects, bundled with prior clearances, is the right strategy. Corporatisation of ports is also a key reform step. An ambitious target of 175 GW of renewable energy will provide green jobs and contribute positively to climate change.

There are many steps in tax reforms as well. The goal is to move away from complex exemptions to a simple tax code. The corporate tax rates will move from 30% to 25% in the next four years, bringing India on par with Asian peers.

The big game-changer is the rollout of the goods and services tax (GST) whose launch date is April 1, 2016. GST requires collaboration of states and the Centre. As per the 14th Finance Commission, now 42% of taxes will devolve back to the states. This will truly strengthen the notion of cooperative federalism.

The Budget also sends a strong anti-corruption message, introducing punitive measures against undisclosed income and wealth. On reaching out to the vulnerable and subsidy reforms, the big idea in the Budget is JAM: the trinity of the Jan Dhan Yojana, Aadhaar identity and the mobile. This has the potential to transform the efficacy of subsidy and delivery of government services.

The FM has set the pace and we can look ahead to a glorious future.

The writer is chairman, Aditya Birla Group