India budget gets mixed reviews
Indian has announced its first full budget since Narendra Modi’s Bharatiya Janata Party party swept to power in May 2014. Finance minister Arun Jaitley, revealed a range of measures in his address to parliament on Saturday, 28 February.
Among the major announcements were plans to build five “ultra mega” power projects of 4,000 megawatts (MW) to ease the energy crisis; an increase in infrastructure spending by $11.3bn (£7.32bn) to boost growth; creating a “universal social security” that would give poor Indians access to subsidised insurance and pensions; the implementation of a uniform countrywide goods and services tax (GST) by April 2016; a plan for welfare money to be paid directly into people’s bank accounts to eliminate corruption and wastage; proposals to abolish wealth tax and replace it with a surcharge on the super rich; and cutting corporate tax from 30% to 25% over the next four years.
The Financial Times reported that business leaders were “mostly enthusiastic about the budget, especially the reform of taxes and excise duty” – an inland tax on the sale, or production for sale, of specific goods. Bhaskar Pramanik, chairman of Microsoft India, told the FT that, “currently, it is cheaper to import a full product than to assemble it or make it in India”, but added that cuts and reforms to excise duties are “a good sign” and “will hopefully have an impact”.
Kiran Mazumder-Shaw, managing director of Indian biopharmaceutical company Biocon, told the BBC that Jaitley’s proposals were “overall very good”. She added that, while she is “normally very critical of budgets”, she could “not fault this one”.
However, analysts have been more critical of the plans. While the Economist wrote that the budget “embodies a move away from fiscal consolidation and towards an emphasis on supporting economic growth”, it also accused it of being “short on details and riddled with gaps”.
It said that, despite the government’s measures to boost infrastructure funding, “infrastructure projects will continue to languish until challenges associated with land acquisition have been addressed.”
And in a separate article, published on 7 March, the Economist said that the budget lacked the “quantum jump” Jaitley boasted of at the beginning of his speech, and instead offered incremental changes. Overall, it wrote, the proposals were missing “a sense of the giant steps that might follow these smaller moves”.
This view was echoed by the Wall Street Journal, which wrote that Jaitley’s proposed reforms to welfare, tax and infrastructure spending “are a far cry from the slashing of expensive subsidies and rapid privatisations of state-run banks and industrial companies that some economists had hoped to see”, adding that “further details on plans to end electricity shortages and simplify national and state sales taxes were also lacking.”
And while Reuters news agency reported that India’s 2015/16 budget was deemed “credit neutral” by Moody’s Investors Service, it also said in a separate report that it lacked “big bang” reforms.
“Billed as a test of the nationalist premier’s willingness to reform a $2tr (£1.29tr) economy with a bloated public sector and weak private investment,” Reuters wrote, “the budget was short on structural reforms and contained revenue targets some called unrealistic.”
Writing on www.nasdaq.com, Peter Kohli, CEO of DMS Funds, gave a “different perspective”.
He praised the government’s efforts to “aggressively [address] things like clean water, sanitation and roads”, noting that “there are currently tens of millions of Indians that live without access to clean drinking water, or running water, and sanitation.” He also described the government’s pledge to build 60m toilets and the expenditure of around $3.6bn for housing and urban development as “a move in the right direction.”
India, he says, “needs to move cautiously forward, but always forward, and by doing so will minimise the number of people left behind by progress.”
One aspect the FT focused on in a piece published on 4 March, was the government’s efforts to tackle “black money” – vast sums of money hidden abroad by the country’s powerful business, political and bureaucratic elites.
The budget included a “bill for a comprehensive new law to deal with black money”, including a prison sentence of up to 10 years for evasion of tax in relation to foreign assets.
Jahangir Aziz, Chief Asia economist for JPMorgan, told the FT that the measure is a “very strident, muscular, macho stance”, which “plays extremely well as a populist measure”, but added that it would have little effectiveness.
He said: “It doesn’t really get you anywhere. The problem now is not that the punishment levels are too low. It is that we do not have the legal ability to go and identify unaccounted money.”
About Winnie Agbonlahor
Winnie is news editor of Global Government Forum. She previously reported for Civil Service World - the trade magazine for senior UK government officials. Originally from Germany, Winnie first came to the UK in 2006 to study a BA in Journalism & Russian at the University of Sheffield. She is bilingual in English and German, and, after spending an academic year abroad in Russia and reporting for the Moscow Times, Winnie also speaks Russian fluently.
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