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Will Budget 2016 Rise To The Challenge?

17/03/2016 8:24 AM IST | Updated 15/07/2016 8:26 AM IST
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SHAMMI MEHRA via Getty Images
Indian farm labourers sort potatoes in a field on the outskirts in Jalandhar on February 29, 2016. India aims to double the income of its millions of struggling farmers including by spending 359 billion rupees (USD5.2 billion) on boosting the vast agriculture sector, in plans outlined in the annual budget. Finance Minister Arun Jaitley said the government was focusing on boosting livelihoods in rural areas where more than half of the country's population lives. AFP PHOTO / SHAMMI MEHRA / AFP / SHAMMI MEHRA (Photo credit should read SHAMMI MEHRA/AFP/Getty Images)

Ever since Finance Minister Shanmukham Chetty presented India's first Budget in 1947, the announcement of the Budget has been eagerly awaited as the first big ticket political event of the year. Therefore, it should come as no surprise that even a fortnight after FM Jaitley presented the Budget, commentaries continue as to whether it fulfilled hopes or lacked the much-needed big bang vision.

This oscillation between applause and disappointment reflects perceptions of how realistic the government's aspirations are and whether it will be able to achieve the stated objective. This is because a Budget is essentially a statement by the government of what its priorities are for the year. The Budget document is, in other words, an allocation of funds for different sectors. Allocations are not, however, a sanction for expenditure.

The genuine fear is that incurring expenditure will be confused with project completion when in reality it would only push open the door to corruption even wider.

Expenditure is incurred on the basis of prescribed administrative and financial procedures that need to pass audit scrutiny. Failing this, it becomes an audit objection and in the worst-case scenario features in the Comptroller and Auditor General's report, which is presented to Parliament. To that extent, actual expenditure incurred usually falls below allocations because of reticence in giving approvals. Fear of reprisals after change of government or investigations by vigilance on the basis of complaints of misappropriation of funds can be a significantly demotivating factor for bureaucrats in approving proposals. Delays become the norm. Consequently, at the revised estimates stage, progressive expenditure statements and the ability to spend determine fund allocations and tend to be substantially lower than Budget estimates.

This is the real challenge that governments face. In short, will Central government spending for the financial year utilize fund allocations or will funds lapse, as has been the case on innumerable occasions in the past with successive governments? Utilization and, thus, implementation will be the litmus test of the government's resolve to match its aspirations with achievement. A shortfall will attract criticism that the government falsely raised expectations.

Ensuring that the allocations go to the intended beneficiaries within the stipulated time frame will be the biggest challenge the Central government will face.

To that extent, all Budgets face the critical challenge of implementation. Consider some allocations in the 2016 budget, for instance. Under the Accelerated Irrigation Benefit Programme (AIBP), the Finance Minister said that there were 89 pending projects and their completion would require ₹17,000 crores next year and ₹86,500 crores in the next five years. On the floor of Parliament, he conveyed the commitment of the government in ensuring 23 of the projects would be completed before the end of the financial year. It bears recalling that the majority of these projects have been languishing for years. What miracle wand will now see fast-tracking and, thus, completion? Indeed, the genuine fear is that incurring expenditure will be confused with project completion when in reality it would only push open the door to corruption even wider. Ensuring that the allocations go to the intended beneficiaries within the stipulated time frame will be the biggest challenge the Central government will face.

Similarly, Prime Minister Modi's pledge to double the income of farmers by 2022 was rejected by former PM Dr Manmohan Singh as being "an impossible dream". Indeed, PM Modi himself indicated that the goal would be achieved only if the state governments gave priority to agriculture. As the history of India's Centre-state relations have repeatedly demonstrated, this is an uneasy relationship where state governments that are in opposition to the Central government rarely sing the same tune. Consequently, the sole big idea might fall by the wayside, as its success is entirely dependent on the proactive manner in which state governments take interest in the rural sector and in agriculture.

India represents a clear mismatch between expectation and delivery. The importance of improving conditions for doing business in India cannot be over-emphasized.

Consider the ease of doing business. At a talk recently delivered at the Mumbai campus of the SP Jain School of Global Management, Mark Thirlwell, chief economist with Austrade, in response to a query on how India was perceived by Australian companies, said when Australian companies were asked to identify the top five exciting destinations in the world for investment, India would invariably feature. At the same time, if Australian companies operating abroad were asked which they felt were the top five most difficult places to do business, India would invariably feature too! In other words, India represents a clear mismatch between expectation and delivery. The importance of addressing how important it is to improve conditions for doing business in India cannot be over-emphasized.

The government has announced the ease of doing business as among its top priorities. For this a number of amendments to the Companies Act are required but can only be achieved with the approval of Parliament. Experience suggests that this is not likely to be an easy task given the manner in which Parliamentary proceedings have been stalled over the past several months and the passage of important Bills, especially GST, delayed. It is, however, good news that the Opposition has agreed to the passage of some of the Bills. The government's commitment on fiscal consolidation is also excellent news. All this impacts the way in which India is perceived by foreign investors.

A pro-poor Budget does not work without an economic liberalization programme that attracts domestic and foreign investment coupled with expenditure in the social sector.

Two important challenges confront all governments: first, the ability to spend allocations and ensure that the funds reach the intended beneficiaries and, second, to see the budgetary exercise as being in conjunction with a series of other enabling executive actions. For transformative change to take place in the Indian economy, tough economic reforms are required. A pro-poor Budget does not work without an economic liberalization programme that attracts domestic and foreign investment coupled with expenditure in the social sector. Simultaneously, the government needs to visibly demonstrate political will in tackling corruption at all levels, especially the connivance between local politicians, law enforcers, contractors and the multiple gatekeepers who thrive on speed money. Unless corruption is addressed, investors will not back the India story.

A dream Budget is one that can be implemented. At the end of the day, a Budget and its implementation need to be seen as setting the tone for inclusive growth in a country where the Mars mission and farmer suicides are a grim reality and take place simultaneously. Unless this is a collective end-objective, India will again represent the inability to deliver on aspirations. Yet again, the people would have lost.

[Amit Dasgupta, a former diplomat, heads the Mumbai campus of the SP Jain School of Global Management]

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