The Centre’s game plan, as revealed by the Budget, is all about sustaining growth. But fixing implementation is the crucial next step. Before Finance Minister Pranab Mukherjee presented the Union Budget for 2011-12, many political observers felt that he may just use it as an opportunity to shore up the government’s diminishing equity. Others expected some big-ticket reforms to indicate that the government had recovered from the sting of a series of scams and meant business worthy of the mandate people gave it two years ago.
Belying either expectation, Mukherjee laid out plans to simplify the administrative machinery and improve economic efficiency to prepare for the big ideas that could come later. If everything goes according to plan, a unified goods and services tax for the entire nation and a brand new direct tax code would become a reality; each citizen will have a right to food and perhaps even have health coverage, well in time for the 2014 elections.
The Budget, both by what it announced and what it did not, reiterated a guiding principle that the United Progressive Alliance (UPA) has articulated over the past couple of years — preserving growth momentum is paramount. And it will rely heavily on private investment to pull it off. UPA, by its own admission, had come back to power with the mandate of ‘inclusive growth’. However, each of the three budget speeches in UPA-II list ‘sustaining high growth’ before ‘making development more inclusive’ as priority.
“There has to be growth before there is inclusion. Without growth there cannot be any inclusion,” says one senior official in the Prime Minister’s Office. This budget clearly shows which side of the debate the government has flipped for. It promised to cut spending, even on some of its flagship social welfare plans (such as the rural jobs guarantee scheme) and subsidies, preferring to tighten its finances with a stiffer fiscal deficit target of 4.6 percent (of the GDP) as against a previous target of 4.8 percent for 2011-12.
In Favour Of Growth
The growth versus development debate has been engaging some of the best minds, as India continues to battle growing inequality and persistent poverty despite fast growth.
Worldwide audiences were captivated recently when top economists and thinkers from across the world inconclusively yet hotly debated India’s growth story in an online forum. Economists such as Jagdish Bhagwati and Arvind Panagariya argued for pro-market reforms as they saw growth as an effective and primary tool for alleviating poverty. It also allows governments to have more resources to bring about redistributive justice, they said.
However, others such as Nobel Laureate Amartya Sen believe that excessive focus on growth is inappropriate. While agreeing that growth helps the poor, Sen believes that excessive focus on growth rates alone, especially in comparisons between India and China, is misleading. What really matter are the fruits of growth like improved human development indicators, he felt.
“People (in India) have started taking growth for granted” — This is a standard refrain among India’s policymakers. It is in this context that the Budget for 2011-12, and what it hopes to do in key areas such as agriculture, manufacturing and systemic efficiency, perhaps needs to be interpreted. The budget lacks short-term measures for tackling food inflation with the government hoping that fresh arrivals of grains and vegetables after a good farming season would by itself take care of that. But it does look at supply side reforms such as a boost to building good storage capacities to tackle price rise in the long term and reduce estimated wastage of 40 percent of India’s fruit and vegetable output.
“After a long time, I have seen a budget which has initiated some very important reforms in agriculture,” says Ramesh Chand of National Council for Agriculture Policy. Chand says the trick lies in pushing those reforms, which, while being crucial, does not necessarily require political consensus. He says the government has recognised the enormity of the constraints on supply and storage and is banking on private investment to remove them.
Farming will also get a boost from direct cash transfer of subsidies that will help improve systemic efficiency and plug leakage. Senior officials say Prime Minister Manmohan Singh had a hand in pushing this reform through. A PMO official says that it is typical of Singh to let debates and dialogues play out in full before taking a decision.
Belying either expectation, Mukherjee laid out plans to simplify the administrative machinery and improve economic efficiency to prepare for the big ideas that could come later. If everything goes according to plan, a unified goods and services tax for the entire nation and a brand new direct tax code would become a reality; each citizen will have a right to food and perhaps even have health coverage, well in time for the 2014 elections.
The Budget, both by what it announced and what it did not, reiterated a guiding principle that the United Progressive Alliance (UPA) has articulated over the past couple of years — preserving growth momentum is paramount. And it will rely heavily on private investment to pull it off. UPA, by its own admission, had come back to power with the mandate of ‘inclusive growth’. However, each of the three budget speeches in UPA-II list ‘sustaining high growth’ before ‘making development more inclusive’ as priority.
“There has to be growth before there is inclusion. Without growth there cannot be any inclusion,” says one senior official in the Prime Minister’s Office. This budget clearly shows which side of the debate the government has flipped for. It promised to cut spending, even on some of its flagship social welfare plans (such as the rural jobs guarantee scheme) and subsidies, preferring to tighten its finances with a stiffer fiscal deficit target of 4.6 percent (of the GDP) as against a previous target of 4.8 percent for 2011-12.
In Favour Of Growth
The growth versus development debate has been engaging some of the best minds, as India continues to battle growing inequality and persistent poverty despite fast growth.
Worldwide audiences were captivated recently when top economists and thinkers from across the world inconclusively yet hotly debated India’s growth story in an online forum. Economists such as Jagdish Bhagwati and Arvind Panagariya argued for pro-market reforms as they saw growth as an effective and primary tool for alleviating poverty. It also allows governments to have more resources to bring about redistributive justice, they said.
However, others such as Nobel Laureate Amartya Sen believe that excessive focus on growth is inappropriate. While agreeing that growth helps the poor, Sen believes that excessive focus on growth rates alone, especially in comparisons between India and China, is misleading. What really matter are the fruits of growth like improved human development indicators, he felt.
“People (in India) have started taking growth for granted” — This is a standard refrain among India’s policymakers. It is in this context that the Budget for 2011-12, and what it hopes to do in key areas such as agriculture, manufacturing and systemic efficiency, perhaps needs to be interpreted. The budget lacks short-term measures for tackling food inflation with the government hoping that fresh arrivals of grains and vegetables after a good farming season would by itself take care of that. But it does look at supply side reforms such as a boost to building good storage capacities to tackle price rise in the long term and reduce estimated wastage of 40 percent of India’s fruit and vegetable output.
“After a long time, I have seen a budget which has initiated some very important reforms in agriculture,” says Ramesh Chand of National Council for Agriculture Policy. Chand says the trick lies in pushing those reforms, which, while being crucial, does not necessarily require political consensus. He says the government has recognised the enormity of the constraints on supply and storage and is banking on private investment to remove them.
Farming will also get a boost from direct cash transfer of subsidies that will help improve systemic efficiency and plug leakage. Senior officials say Prime Minister Manmohan Singh had a hand in pushing this reform through. A PMO official says that it is typical of Singh to let debates and dialogues play out in full before taking a decision.
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