Jaitley is making Budget 2015 obsolete by pushing most key reforms outside it

Many observers were disappointed when Finance Minister Arun Jaitley, while presenting his maiden Budget in July last year, failed to make any significant announcements on key issues such as retro tax, goods and services tax, labour reforms, subsidies, steps to restart the investment cycle or boosting infrastructure.

Moneycontrol.com January 07, 2015 12:41:47 IST
Jaitley is making Budget 2015 obsolete by pushing most key reforms outside it

Many observers were disappointed when Finance Minister Arun Jaitley, while presenting his maiden Budget in July last year, failed to make any significant announcements on key issues such as retro tax, goods and services tax, labour reforms, subsidies, steps to restart the investment cycle or boosting infrastructure.

Six months on, the Narendra Modi-led government has taken several important steps on each of these.

The government made it clear it was not in favour of appealing a court decision that ruled in favour of Vodafone in a Rs 3,200-crore tax case. A definite plan for GST is in place with an eye on April, 2016 rollout. Several labour reforms, such as tweaking the Apprentices Act and Factories Act, have been initiated.

In order to curb subsidies, diesel has been decontrolled while plans to introduce direct benefit transfer for LPG have been taken up on a war footing. While several ordinances have been pushed through such as the one to tweak the Land Acquisition Act or facilitate a coal e-auction.

Jaitley is making Budget 2015 obsolete by pushing most key reforms outside it

PTI image

With the new Budget less than two months away, it would have been inconceivable to imagine the government would push through so many changes when it hadn’t touched upon them in a big way in the previous Budget.

To be sure, some reforms have manifested themselves by virtue of some degree of luck (diesel decontrol, thanks to the fall in international crude prices) or necessity (ordinance on coal auctions, which need to conclude before March in line with the Supreme Court ruling on Coalgate).

But there is a definite mechanism at work here: which is, that the Modi government wants to make it clear reforms will be a year-long process.

It was evident in the way the government hiked railway passenger fares less than 20 days before the Railway Budget took place, using the Budget itself to outline the broader policy direction the ministry will take with respect to the transporter.

“It is definite that in the last seven months the government has made changes across many areas and we fully support the approach of the government where they say the Budget is only a one-day accounting exercise but changes and benefits to the economy or changes for economic growth can be done every day of the year,” CII vice president Ajay Sriram told CNBC-TV18 yesterday.

But so long as the industry (such as its representative bodies like CII, which present “wish-lists” to the FM before the Budget exercise gets under way), the media (with its Budget specials) and analysts bill it as policy-announcement vehicle rather a presentation of statement of accounts, there will always be pressure on governments to not “disappoint” in the Budget.

Indian governments have historically used the Budget to announce major policy decisions: such as Rajiv Gandhi’s 1987 exercise when he introduced the corporate tax or Manmohan Singh’s 1991 exercise that kick-started the liberalization process or Chidambaram’s 1997 ‘Dream Budget’.

But it appears that – by pushing most key reforms outside the Budget -- the incumbent government has made a serious attempt to bring it closer to what it is: a mere accounting and allocation exercise.

Though by all accounts, for a long time to come, it is expected to remain a high-decibel event – unlike most leading economies around the world where it mostly flies under the radar.

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