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Home » News » Business » PM Modi's first budget a victim of his own success
PM Modi's first budget a victim of his own success

PM Modi's first budget a victim of his own success

The new government has delivered its first budget studded with tax breaks, bold structural reforms and tighter spending. In an ideal world that would be hailed as a dream budget, considering the current weakness in the national economy.Yet, so high are the expectations from Prime Minister Narendra Modi that the budget has failed to generate the kind of euphoria usually associated with anything bearing his stamp. The budget, thus, appears to have become a victim of Modi”s own success.

While investors had hoped Modi would use his strong election mandate to unleash a raft of reforms comparable to the opening up of the economy in 1991, many voters expected him to work a miracle to curb prices, create millions of new jobs and improve people”s lifestyles.

Given the mountain of expectations, finance minister Arun Jaitley”s job was never going to be easy.

Read: Words, just words: why budget is a missed opportunity

Read: FM Jaitley promises higher growth

In what is clearly a “thank you voter” budget, the government raised tax income exemption limits, cut prices of middle class aspirations goods such as LCD/LED television sets and branded clothes, eased norms to boost housing as well as raised tax casino online incentives on home loans.

Still, it was no mindless revenue-eroding populism.

Jaitley presented a budget to parliament on Thursday that not only vowed financial probity by restricting the fiscal deficit to 4.1% of gross domestic product in 2014-15, but also virtually keeping spending unchanged if one takes inflation into consideration.

In a signature initiative, which has been awaiting parliamentary nod for more than a decade, the government said it will also lift limits on foreign investment in defence and insurance to 49% from 26%.

Read: Cong leads opposition fire, dubs budget as “anti-poor

Consider the long term benefits of the above measures: Lower deficits will lead to a reduction in inflation. Indigenous production of defence equipment will save precious foreign exchange, which in the long run should trigger a fall in the current account deficit.

In turn, balanced accounting books should stabilise the rupee and help in any future move towards full convertibility of the currency.

Some of Jaitley”s far-reaching announcements were related to taxation, including a move towards a common Goods and Services Tax and a high level committee to review retrospective tax claims as well as a promise not to destabilise the tax regime with retrospective demands as far as possible.

To restart the investment cycle that can create the millions of jobs India needs, the government has eased foreign investment rules and offered investment allowance at the rate of 15% to the manufacturing sector that puts in more than Rs. 25 crore in any year in new plant and machinery.

Read: Jaitley”s maiden budget aims for higher economic growth, provides tax breather

The government will also seek to raise a record $13 billion from selling state assets – nearly four times what the previous government raised in the fiscal year ended in March 2014. The government has also stated it will better target food and fuel subsidies.

In its far-reaching implications, Jaitley”s proposals have the potential to be a game changer for India”s economy.

It”s a pity the new government”s budget has fallen short of the most bullish expectations.

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