<b>Surjit S Bhalla:</b> Beginning of the end of C3?

It is relevant to understand the background to Budget 2009/10. Hope and despair is how I would describe it. Hope because the government finally had a political mandate, a vote much beyond its own optimistic expectations. “No more excuses” was the Congress’s future. One would now know for sure whether the Communists within the Congress party really held sway over policy decisions. Five years of inactivity can dull anybody, and the Congress was getting geriatric in every possible way. Good men, bad ideas had turned into formerly good men, worse ideas.

But in a flurry of pre-Budget activity, came some announcements. The government was not averse to financing leaky public expenditures (note that I don’t say the fiscal deficit — more on this later) by selling shares in government-owned companies. Salman Khurshid, the minorities affairs minister, made some very intelligent noises about the need for affirmative action — and the rejection of reservations, in education and jobs. The education minister, Mr Sibal, announced his intentions of transforming the education sector. Now I think that one national exam is a terrible idea, but he is to be applauded for admitting that the education system is broke, very broke. More than repair it needs reconstruction, and Kapil’s pronouncement was a genuine uplifting of the reform spirits. Next, in a signal that the government finally will begin to concentrate on leakages in delivery of social services, Nandan Nilekani was appointed as czar to bring in a unique identification card for all citizens — honestly, to serve the poor better. Then before one could say ‘Wow’ the government announced its intention of scrapping Article 377, a law which defines homosexuals as criminals. The law is even older than the Congress party and the fact that it had continued to exist was more than shame for our much-vaunted democracy.

But before one could say ‘Hooray’, the government started to backtrack. Religious sentiments are hurt and other nonsense was used as an excuse. The Communist Conservatives in the Congress (C3 for short) in charge again? What possible loss could the Congress suffer by scrapping Article 377? Didn’t the party realise that it was voted in because it was considered the “liberal alternative” by a large segment of the population, by a large proportion of the young and bulging middle class? As events turned out, we will never know the answer, but for its own benefit, and future, the Congress party should scrap within it those that favoured a business-as-usual cautious attitude towards long-overdue reforms, social or otherwise.

Prophetically on the same day,  July 2, 2009, the  Economic Survey and the Delhi High Court came to the rescue. The ministry of finance’s own document on the economy came out of the closet with a wide-ranging analysis of the Indian economy — and a comprehensive listing of needed reforms. Quite easily the best Economic Survey ever produced in India (in style, presentation and content), this document gave optimism a good name. The Court did what the C3 had pushed back — it made homosexuality legal. India was back on track; did one dare hope for Budget day?

Hope was rewarded, despair contained. The Budget speech brought in some potentially major reforms in a by-the-way manner. Fertiliser subsidies would now be nutrient-based; the farmer would finally get the subsidy rather than inefficient government and private companies. Great for the economy, and the farmer, and bad for fertiliser companies. Decontrol of oil prices, after a study group meets and decides (a formality in my opinion), is another mega-reform. But the reform moves don’t stop there. There is a 45-day limit on coming out with a “new” tax code, a tax code which will stop the obsession of finance ministers (and juniors in the finance ministry) to constantly tinker with tax rates, not to mention the plethora of cesses, surcharges and other taxes bordering on the fringe. Plus the GST is on schedule for April 2010; most expected this to be pushed back to 2011. So a major tax reform, direct and indirect, over the next year. Fringe Benefit Tax was abolished, and service tax imposed on lawyers, a community that the previous finance minister, a lawyer, had self-indulgently exempted. An undoing of past mistakes, without apology. So both on tax and expenditure, major initiatives and intent, Budget 2010 is a winner. What else could one have hoped for from the Budget, which after all is a tax and expenditure statement?

What about the fiscal deficit? What about it? Compared to the Interim Budget, subsidies are higher by Rs 10,000 crore; the overall fiscal deficit is up by 0.1 per cent, from 6.7 to 6.8 per cent. Even the fiscal vigilantes should be cautiously happy. And did anybody seriously expect the fiscal deficit to be brought down in a recession year? How, pray, do you do that — by raising taxes so that you get even less revenue? By lowering expenditures so that you get even less growth?

There was one genuine disappointment — the Budget failed to give a figure for disinvestment. This was not at all unlike the Congress attempting a fudge on Article 377. It failed on that count — it will fail on this fudge too. The government can always argue, correctly, that it can bring disinvestment into policy anytime. It most likely will.

An economist’s steering hand is visible; Budget 2009/10 has a well thought-out reformist touch. Previous UPA Budgets had meandered, lost purpose, and were too consumed by high economic growth which they did nothing to make happen. In a welcome departure, this Budget proposes, and intends to deliver, a full set credible second-generation reforms. All in all, one of the best Budgets I have seen in a long time; actually among the two best Budgets since 1991, with Sinha’s BJP 1999/2000 budget, and not the so-called Dream Budget of 1997, being the other very good Budget.

Surjit S Bhalla, MD, Oxus Research & Investments

The author is anchor of Tough Talk, a talk show on NDTV Profit.
email: surjit.bhalla@oxusinvestments.com