Union Budget 2015: Arun Jaitley offers a realistic blueprint for growth, but execution will be key

Arun Jaitley, who announced the Modi-government’s maiden full-year budget, has indeed scored a point in terms of offering a realistic blueprint for a much-needed reform push to the economy. At first glance, the NDA-budget envisages public investments as the primary-driver for economic growth. It reiterates the promises to manage the government’s finances better, reduce the corporate tax burden in phases and also remove structural bottlenecks to doing business. Of the total public investment of Rs 1.25 lakh crore planned for fiscal year 2016, investments for fund-starved infrastructure will go up by Rs 70,000 crore. Jaitley has also announced a host of steps to free up funds for the infrastructure sector. [caption id=“attachment_2127757” align=“alignleft” width=“380”]  Representational image[/caption] Jaitley seems to be on the path to reducing the fiscal deficit by sticking to a target of 4.1 percent this fiscal year and 3 percent in the next three years. While corporations will benefit to an extent from the reduction in corporate taxes to 25 percent from 30 percent over four years, the budget doesn’t seem to offer much to the common man except for some minor relief. The NDA-government, which is already under attack from the opposition for its anti-farmer policies, has tried hard to appease the farmer by allocating a substantial chunk of funds to the sector. Jaitley has allocated Rs 5,300 crore for micro-irrigation, and the farm loan target has been hiked to Rs 8.5 lakh crore for 2015-16. Logically, much of the burden of this will fall upon state-run lenders. Notably, Jaitley has also flagged off reforms in the banking sector by setting up an autonomous body to conduct appointments in state-run banks and by bringing in a bankruptcy code to facilitate the speedy recovery of bad debt. These steps can offer much-needed reforms for banks and other financial institutions, already strained with bad loans, as _Firstpost_ highlighted earlier . But, one critical area, missing the in the budget speech at least, is the much-needed capital infusion of public sector banks. If the government does not give banks adequate capital support, this can have an adverse impact on India’s ailing state-run banks, which are neck-deep in bad debt already. Remember, of the committed Rs 11,200 crore capital in state-run banks for 2014-15, the government has so far infused only about Rs 6,990 crore in a handful of large banks. In short, budget 2015 has the ingredients to offer a much needed push to growth to the economy, which has already been battered by a prolonged phase of slowdown and pessimism during the UPA-regime. But much will depend on how investors read the budget. Stock markets, which cheered the budget in the first half, pared all its gains towards the end. Investors have been desperately looking for fresh triggers from the budget in the backdrop of fading confidence in the Modi government on the part of industry in the absence of big reforms. Even the government’s high GDP growth projections calculated on the revised base, have failed to convince a large segment of the industry and economists, who argued that the projected high growth numbers do not correlate with the reality on the ground. The divide is visible on key macro-economic indicators such as bank credit growth, slowing growth in manufacturing and financial services sectors, and not-so-encouraging tax collections. Prima facie, Jaitley has done a decent job by offering a clear roadmap to change things better for the economy. But, the key for the “quantum jump” in growth, Jaitley spoke about, lies only in proper execution. (Kishor Kadam contributed to this story)