Budget 2015: Why this one must be India's "Dream Budget"

This Budget is important as it spells out the economic vision of the government. Expectations will be sky high as the Modi government has been elected on the promises of reforms and development agenda.

In this Budget, the government however has to walk a tightrope here. The most important task for them is to control the fiscal deficit, which the 16th Finance Commission has targeted at 3.6 per cent by the next year. This will not only curb inflation but show FIIs that India is serious about reforms. At the same time they must increase capital expenditure – especially on roads, railways and power infrastructure. This is the main thing that will make domestic and foreign companies put up shop here.

Timeline

One also expects Finance Minister Arun Jaitley to announce a timeline for the Goods and Services Tax – (GST) in the Budget, which will be a big boon for the industry. I expect GST to be rolled out by April 2016, but I hope the government does not make too many concessions to the Opposition, as GST will then be made ineffective. Single window clearance is something the industry desperately needs, as it will enable a business environment especially for SMEs – Small and Medium Enterprises, who are the cornerstone of the Indian growth story.

Unlike what many people are saying, I do not believe in the divestment of PSUs. This is a one time money option and the control will just pass to the private sector which may not necessarily be in the public interest. I think the government needs to look at other ways of generating revenue, and one of these ways can be done through the urgent reform of the Public Distribution System – (PDS) in which leakages must be plugged.

Removing pilferage from PDS can help save the government as much as Rs 25,000 crore or 20 per cent of the food subsidy expenditure in 2015-16. The other thing that needs to be done immediately is the introduction of Direct Benefit Transfers (DBT) in place of subsidies. If a household receives direct cash, they will spendmore on health and education, which will not only increase social welfare, but also increase consumption in the economy, which is a good thing. Of course there will be fierce resistance to the removal of subsides from some sections of society, but the government must stick to its agenda.

The main area the government needs to focus on is boosting the manufacturing sector, which can and must contribute much more to the country’s GDP. The government has already taken some steps in this area with its "Make in India" initiative. Foreign investment in defence has been raised from 26 per cent to 49 per cent and 100 per cent in railway infrastructure. But further steps need to be taken by cutting excise taxes and increasing infrastructure so that manufacturing gets a boost. The focus needs to be placed on the food processing sector, as we have a large population who fall under the BPL. Special attention must be carried out to ensure that food reaches the people most in need and is not left to rot in granaries.

Income

Another way the government can generate income is by taking steps to expand its tax base. Recent data has revealed that India’s tax to GDP ratio is worse than other developing countries and unless we make tax collection more effective, either through direct or indirect taxation, the government will not be able to control the deficit or give the manufacturing sector the boost that it needs. Secondly, it must incentivise domestic and foreign investors to invest in agriculture so that rural workers are not made to migrate to urban cities in search of jobs. Agriculture needs to be taken seriously and more labour intensive investment will help this sector. But while the government needs to focus on the rural sector, it must not fall prey to populist measures to ensure that this happens.

Indicators

There are good indicators for the FM prior to the Budget. The rise in the Sensex and the fall in global oil prices has helped the government to raise diesel and petrol fuel taxes while cutting diesel prices by 25-30 per cent. This is a gain for households as well as businesses, and dampens inflationary pressures in the economy. The hint by the RBI of further interest rate cuts if inflation continues to decline, is also good news. The government needs to seize on this momentum and provide India and Indians with a reform-oriented Budget that lays down a roadmap of where the country is heading over the three years.

Much has been made of Modinomics and the government’s huge Lok Sabha mandate. It’s clear that people expect big things. In fact this Budget needs to leave a mark much as the 1991 Budget did, when the economy was going through a crisis. This is the best time for them to do so.