The Hindu Business Line : Budget 2004 needs broader vision

WHAT an economy India now represents. Over 8 per cent GDP growth; $110 billion-plus foreign exchange reserves. Every major economic segment performing well: Agriculture, Infrastructure, Services and Manufacturing. Reason for confidence? Cause for complacency? Unfortunately no. The challenge of India is so complex that crossing major milestones only leads on to new issues to be tackled.

The first fundamental challenge for Budget 2004-05 is whether it can stimulate the rural economy, help maintain and sustain agriculture growth. Six-hundred million people; 600,000 plus villages. Can the Budget help? Yes, in different ways. First, to enable rural connectivity by not merely allocating funds but finding a new method of implementation. The Prime Minister has spoken of district-level budgets. Clearly, a decentralised system is the only way with a single authority for central facilitation.

Another way would be through a series of tax measures to support all aspects of the food and agri economy, including poultry, horticulture, fruit and vegetable processing, tractors, agricultural implements, etc. Helping to make these cheaper, affordable and, thus, generating new demand, growth and higher volumes and value addition.

A third way would be through new schemes, but experience has shown enormous delays in implementation and inadequate "delivery" systems. Much of the results are only on paper because of the many steps involved in the implementation process. A new approach would be to entrust implementation to professionally organised NGOs with monitoring by a public-private joint group.

All these would lead to employment generation as a natural offshoot. And, this becomes key because the turnaround and new competitiveness in the manufacturing sector just cannot fulfil the fresh employment needs of India. In fact, because manufacturing is exposed to international competition, and has to be technologically up-to-date, additional employment can mainly come from greenfield investments. And, this can happen if the Budget does away with indirect tax anomalies, contradictions and conflicts so as to support domestic manufacturing industry to add value within the country. There are still many tax anomalies to be addressed — this is the principal need of manufacturers.

Of course, the services sector is growing at a high rate and will generate fresh employment. But skills shortages are developing, leading to employee turnover at a high rate as well as inflation in costs. To arrest this trend, the Budget could support all training activity.

The country needs to train millions of persons across the length and breadth of India, especially in the East and North-East so that jobs are filled through fresh induction, rather than inter-organisation competition. The services sector can generate 40 million new jobs over the next ten years but trained people are urgently needed. The Budget can help by giving an incentive to the individual who goes for training.

Budget 2004, therefore, should not result in high expectations from industry. Modest to low expectations would be correct. Because, the economic context has changed. In the 1990s, and later, the focus was on turning industry into a competitive force. This has been largely achieved. But to expect tax reductions would seem to be unwise and unreal.

Finally, the critical area of action, to generate growth, employment, purchasing power, etc., there must be construction of all kinds — rural roads, highways, urban roads and flyovers, bridges, homes, hotels, office buildings, factories, railway lines, warehouses, airports, power projects, ports and so on. Any kind of construction, which will make an immediate positive impact on the economy. And, in the process India will acquire all kinds of much-needed infrastructure a la China. The Budget can help enormously.

The real focus of Budget 2004 is more medium to long term. To expand the national economy by adding tens of millions of new people to the employment and self-employment force and to give to these persons newly acquired purchasing power. Automatically, industry and trade would benefit. Budget 2004 needs to be assessed, therefore, from a different perspective — a broader vision of the India we want.

(The author is Chief Mentor, CII.)