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Budget 2013: Consistent reforms, effective execution is the key

By Darius Pandole
February 19, 2013

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

In what is widely perceived to be the UPA government’s final budget before polls due next year, Finance Minister P. Chidambaram is likely to continue with the economic reforms he introduced in recent months.

Although these policy announcements may have boosted sentiment, the key to long-term economic growth is consistency, transparency and speed, followed by effective execution on the ground.

Chidambaram will have to balance the twin imperatives of encouraging domestic demand and stimulating growth while keeping the fiscal deficit and inflation under control. A prerequisite for domestic growth is encouraging investments into Indian industry and infrastructure, including healthcare and education. Improved infrastructure would improve productivity and lower the cost of doing business in India, thereby providing multiplier benefits for the economy.

Stimulating investment activity would also require increasing the availability and reducing the cost of long-term debt funding through regular banking channels, development of the corporate bond market, leveraging insurance and pension funds to invest in Indian corporates, dedicated infrastructure debt funds and supporting fiscal incentives. Development of the domestic private equity and venture capital industry would also benefit the economy.

One way to achieve this would be to give incentives to domestic investors, with conducive tax and regulatory policies, to channelize capital flows into the domestic venture capital and private equity industry. Apart from providing long-term risk capital, participation by these funds provides companies with access to technical, financial and business expertise, and also facilitates higher corporate governance standards and international best practices.

In addition, any steps that will reignite the equity culture in the country, especially encouraging retail investors to enter the stock market, would be welcome.

The government should also incorporate measures to create a more enabling environment and facilitate project execution on the ground. A number of projects, especially in infrastructure, have been delayed due to a variety of obstacles.

By making it easier to procure land, licences and permissions, by encouraging PPP models and by introducing reforms like the Goods and Services Tax, the government will infuse confidence to enable better project management and thereby achieve higher economic growth and job creation.

Rather than increasing the burden of taxation on existing taxpayers, the government should work towards bringing a larger part of the Indian population within the ambit of the tax net. Initiatives such as the launch of the Aadhaar cards would result in improved accountability, and consequently improved tax collections. Along with this, the government needs to focus on continually restricting expenditure and capping subsidies to ease pressure on the fiscal deficit.

The UPA needs to focus on improving governance, accountability and probity in public life. This would provide relief to a nation reeling under the stigma of pervasive corruption and would be the cornerstone of future social and economic development.

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