Election special

BEATING THE STREET

Electoral considerations obviously led to the "Mini-budget" (MB). It's apparent that the NDA would much rather not serve out its full-term and look at a post-monsoon election.

Instead it will bank on the feel-good factor of a good fiscal and leverage any benefits accruing from "Samjhauta" with Pakistan.

Fair enough. The MB has objective advantages over a normal election Budget. A full Budget would have had lots of sops and subsidies written in and, we would have had to suffer those for at least 8 months. The MB just cuts some taxes and excise duties.

In the Indian context, any duty cut is an excellent idea. It removes resources from official hands, which usually underutilises them, and places money in the control of private individuals or enterprises.

The cuts will have a beneficial effect in several sectors and some of them were long overdue. The IT hardware chaps get big breaks as do legal mobile importers.

This won't wipe out the gray market but it will force rates down. That, in turn, will lead to an expansion in market size since India is an extremely price-elastic economy.

A larger base of installed PCs should also lead to greater Net penetration, which is when the benefits of e-governance measures will become really apparent. The concurrent liberalisation of laptop, DVD and CD imports can only help this process along.

The cut in aviation fuel excise rates as well as the abolition of air travel taxes are likely to provide significant boosts to tourism and business travel. The easing of the compulsory IT-filing norms for elderly people and the e-filing of service taxes also make things simpler.

Really big benefits are likely to be apparent for players in infrastructure as well as in any manufacturing industry that requires capital machinery imports.

Project costs in infrastructure sector will come down appreciably as a result of the reduced duties for imported equipment and capital goods.

So will costs in practically every manufacturing industry. The government could well afford to offer this, given massive reserves and the need to sweeten the deal for potential infrastructure investors.

On the basis of the MB, the economy will remain in fine shape "" and growth should be accelerated. This will probably offset the effect of price hikes due to rising inflation at the level of manufacturing inputs.

An early election has the further advantage of shortening the period of inevitable uncertainty. It doesn't really matter who wins, so long as the next government is installed soon.

Long-term problems remain of course. But these will never be dealt with in an election year. Sometime somehow, the fiscal deficit must be tackled. It's in double digits if one includes deficits in state finances. The obvious expenditure cuts would have to be in subsidies "" food, fertiliser, energy and power are the sectors worth targetting and each is "sensitive".

Unemployment also remains a problem despite growth. Estimates suggest 2 crore-plus unemployed. Labour laws must be reworked. If employers don't have the right to fire, they won't hire either.

But no government will touch this hot potato in election year. Organised labour may be less than 5 per cent of the total workforce but it is very vocal.