Budget 2013: High on expectations again

February 8, 2013

(Any opinions expressed here are those of the author, and not those of Reuters)

It’s budget time in India once again, the annual month of anxiety and expectations that everyone awaits with bated breath.

Budget 2013 will be especially important on two counts. Coming as it does ahead of crucial state elections, the Feb. 28 budget could be outrageously populist. But with the government not really following through on its policy reforms in recent months, the question is how intent can translate to concrete action. Tough decisions are needed with a greater focus on growth.

While Finance Minister P. Chidambaram visited Singapore as part of a four-city tour to woo global investors and boost capital flows into India, he did little to convince the corporate sector in the country to make additional investments.

The government may be going out of its way to attract foreign direct investment but it has to do more to gain the confidence of local businessmen and turn around the investment cycle. Which is why this year’s budget is important.

Pre-election budgets in independent India have always been used to seek votes, a subsidy-filled exercise that turns a blind eye to one key parameter: the fiscal deficit.

If one views it from this perspective, we could be in for more rural development schemes, greater focus on farmers, more primary education schemes and more government spending on rural healthcare.

It’s important to understand that all these are an essential part of a good budget. But if spending increases on funding and subsidies with little focus on economic growth, it’s not going to help things.

Forget ambitious targets which are unachievable, New Delhi needs to come up with a clear road map to control fiscal deficit. This should be backed by a cut in subsidies.

Growth remains key. What India needs today is an out-and-out focus on growth in the budget, and one doesn’t need to be a Nobel Prize winning economist to know that.

The country needs a budget which further fuels the India consumption story. We need a budget that gives India its much needed infrastructure. The supply chain is another concern and the government needs to address this to get inflation under control.

Clarity on implementing the Direct Taxes Code (DTC), the Goods & Services Tax (GST) and land and labour reforms will be eagerly awaited. Above all, we need a budget that creates a healthy industrial environment where the investment cycle stimulates adequate capital expenditure and a surge in economic growth in the next few years.

This list is not too ambitious and should be an important part of the budget in any growth-focused economy. Anything less would only show a lack of intent by the government to follow up on the reforms already announced. Anything more and the economy will move towards that 8 percent growth mark sooner than later.

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