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Monday, March 7, 2011

A Thoughtful Budget

Media Don’t Get It

Except for The Wall Street Journal and the very thoughtful program anchored by Prannoy Roy on NDTV, the budget got short shrift everywhere else in the media. The general assessment was it was a mediocre or bad budget. Which is as far from the truth as Alaska is from India.

Hours on television and pages in the newspapers were full of meaningless analyses. Some said there were no major reform announcements; others moaned about the tax provisions. One particularly egregious businesswallah, member of the tribe that shows up on television each February 28, ranted about the tax on “centrally air conditioned hospitals.”

The growth brigade was out in full force lamenting this, that and the other. The Left and jholewallahs also dismissed he budget as a continuation of the neoliberlal conspiracy to sell India to the West. The BJP, its credibility waning by the minute, made its usual noise.

The media, “civil” society groups, the Left and the Hindu nationalists couldn’t have got it more wrong. The media are ill-informed and incompetent. The activists are naysayers; the Left works on a discredited economics model and the BJP, aka the Hindu nationalists, are clueless.

Consider the following ten points taken straight out of the finance minister’s speech:

1. Food prices are high despite improved availability. The finance minister said this was because of shortcomings in the marketing and distribution system. Held in thrall by the government and random retailers and middlemen the marketing and distribution system is a problem. So the signal is they will open up to organized retail marketing.

2. Inflation management calls for a focus on agriculture. The need is to improve productivity. The finance minister’s message was to improve the quality of inputs including mechanization, nutrient-based fertilizers and biotech applications.

3. Also addressed in the budget was the need to remove bottlenecks in value-added farming, including horticulture, dairy, poultry and meat. This is of a piece with the findings of the S S Johl committee that was formed in the 1980s and recommended that at least 20 percent of farm land be given over to value-added crops.

4. The finance minister announced the formation of a public debt management agency. The idea is to depoliticize debt and curb populist spending.

5. Disinvestment of public sector units is a huge problem. Calling it the need to increase people’s ownership of these government owned companies, the minister said the government looked to raising 40,000 crore from the sale of their shares in the stock market.

6. Amendment of the banking regulation act is a major announcement. In its purview, private sector banks will be allowed to open more branches. As such, the so-called aam aadmi will not have to battle for banking services that are a problem in the nationalized banks.

7. Also announced was a plan to modernize the stamp and registration administration and the setting up of a central electronic registry for immovable properties. It is a strike in the heart of darkness because real estate is the major source of black money.

8. This is perhaps most important. The government will now do direct cash transfers to people below the poverty line. It’s a brilliant move to stop leakages from welfare schemes.

9. On the taxes front, the finance minister has left most levies untouched but has given a break to the bulk of taxpayers by increasing the exclusion amounts.

These are a few, and there are many more, of the budget’s highlights. It is abundantly clear the government knows what it’s doing.

The budget is beyond is beyond partisan politics and is a sophisticated response to the globalization of India’s economy.

It is clear that this government understands the issues and the problems. It is, as the finance minister said, a transition to a more transparent and result based economic management system.

I think it is a great budget for an increasingly sophisticated economy.

What do you think? Write me.

Copyright Rajiv Desai 2011