Arab Today, arab today indias modi goes slow on big bang budget reform
Last Updated : GMT 18:05:58
Arab Today, arab today
Arab Today, arab today

India's Modi goes slow on 'big bang' budget reform

Arab Today, arab today

Arab Today, arab today India's Modi goes slow on 'big bang' budget reform

Indian PM Narendra Modi
New Delhi - AFP

The maiden budget from India's new right-wing government has promised a return to high growth -- but disappointed some who hoped premier Narendra Modi might use his thumping mandate to unleash radical change.
The Bharatiya Janata Party (BJP) government opted for small steps in last week's budget, in what it called "the beginning of a journey" after winning in May the biggest electoral majority in 30 years.
While some economists felt Finance Minister Arun Jaitley should have been bolder, Deepak Lalwani, head of financial consultancy Lalcap, told AFP it was not "realistic to have 'big bang' reforms so quickly".
Jaitley pledged faster economic growth, tighter fiscal discipline, greater openness to foreign investment and revamped infrastructure.
But he left intact $43 billion worth of anti-poverty subsidies -- raising questions about how he will meet ambitious targets to cut government overspending.
Jaitley's predecessor P. Chidambaram noted acerbically that after criticising the previous left-leaning Congress government's subsidies as "mindless populism", the new man in the job did not touch them.
"Welcome to the real world," Chidambaram remarked.
India's hundreds of millions of poor are a vital vote bank, and the BJP and allies have their eyes on state elections this year. They control just eight out of 29 local governments, and anti-populist moves could alienate voters.
Economists have long argued that India's economic potential will only be unleashed when it curbs subsidies and ends suffocating regulation.
They also advocate relaxing rigid labour protection laws that discourage manufacturers from hiring, and easing complex land acquisition laws to boost industry.
The budget left all these issues off the to-do list, although Jaitley said he hoped a long-awaited national goods and services tax (GST) to increase inter-state commerce would be ready by December.
Brokerage Nomura called the failure to tackle subsidies a "disappointment".
But others said rather than missing the reform boat, Jaitley is playing a longer game to build consensus in a fractious democracy of 1.25 billion people in which competing business, social and political interests abound.
- Low-hanging fruit -
"Mr Jaitley has presented an admirable budget and he's extended hope of many more reforms," Ajay Bodke, investment strategy head at brokerage Prabhudas Lilladher, told AFP.
Reducing subsidies at a time when farmers are struggling through a weak monsoon was not an option in this budget, said Bodke.
The government already delivered some bitter pre-budget medicine in the form of a double-digit hike in rail fares.
"Nothing can be done overnight -- things take time in India -- but Mr Modi is a free-enterprise person, and so we could have a different India in five years," said D.H. Pai Panandiker, who heads the RPG Foundation think-tank.
"If he's in power for 10, we may really become a progressive, middle-income nation," he told AFP.
Still, Jaitley's decision to stick to the last government's goal of cutting the fiscal deficit to a seven-year low of 4.1 percent of GDP has raised eyebrows.
He plans to meet the target through higher tax revenues and quadrupling privatisation proceeds.
But with India mired in its deepest slowdown in a quarter-century -- last year's growth of just under five percent is half the rate seen a few years ago -- Jaitley might "regret abiding by his predecessor's target", said Capital Economics analyst Mark Williams.
The government says growth could hit nearly six percent this year and rebound to seven-to-eight percent by 2018, but cautions that the weak monsoon could hit farm output, undermining expansion.
Jaitley's budget plucked some lower-hanging fruit. To draw more outside money, he hiked defence and insurance foreign investment caps to 49 percent from 26 percent and promised to make the corruption-plagued subsidy system "more targeted".
He announced plans for private-public partnerships to build more roads, rail and other infrastructure to emulate rival China's economic miracle, though analysts fretted about how many investors India will attract.
But change may not just come through budgetary measures, analysts say.
Since defeating the scandal-tainted Congress, Modi -- known as ruthlessly efficient when chief minister of the prosperous Gujarat state -- has been working to change how India's sprawling, inefficient bureaucracy does business.
He has pursued his "Modinomics" campaign agenda of "maximum governance, minimum government", consolidating ministries to streamline administration and speed up decision-making.
At the same time, keeping all bases covered, he has been sounding as resolutely populist as the Congress government, saying his greatest goal is to meet the aspirations of the "weakest, poorest" Indians.
The BJP's landslide victory has seen India's shares soar to record highs. But if growth remains in the doldrums and the government misses its deficit targets, the honeymoon could be over.

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