The Hindu Business Line : Pranab strikes balance between aggressive growth and equity

The emphasis in past Budgets was on stimulating investments in the capital market and foreign investment. At least that was their most visible face, with exemptions galore for dividends and much more for capital gains.

This time the Finance Minister had nothing to give away.

The fiscal deficit is exploding. Increasing taxes is hardly possible, given that the economy is desperately trying to come out of the woods.

To his everlasting credit, the Finance Minister was not panicked out of social and infrastructure spending for fear of the deficit.

His predecessors were mesmerised by the ghost of public finances and psyched by naïve beliefs and theories about the deficit-GDP ratio. Mr Pranab Mukherjee is refreshingly relaxed in this regard.

Welfare-additive

Thus, the Budget allocations for job-guaranteed schemes and those directed to improving the quality of life of the rural and urban poor have been increased significantly. The beauty is — this point has been generally missed — that all this expenditure, though deficit-additive, is non-inflationary and welfare-additive. The consumption basket of the poor will not — or must not — create price pressures. The Finance Minister’s intuitive understanding of these matters must be applauded.

There remains the everlasting doubt whether all these funds will reach the intended beneficiaries and those to be spent on projects will result in full and quality asset creation.

Spending leakages, on administration costs and because of corruption, have become folklores.

Monitoring needed

It is here that the aspiring Mr Rahul Gandhi can start where Mr Pranab Mukherjee has left off, monitoring and ensuring the success of the many well thought-out schemes for the weakest sections of society. If he achieves that, it deserves a permanent mandate to govern.

As one might guess, there is a lot of criticism of the resources-expenditure gap. The pressure of government borrowing will drive up interest rates and affect new investments, it is being said.

Is that right? One suspects the private sector’s willingness to invest is more a function of the state of the equity market than the cost of borrowing.

Besides, debt turning costlier on a higher borrowing programme is hardly a given. Liquidity and inflation expectations are greater influences on Government bond yields compared to the volume of issuance.

It is the Government’s and the RBI’s responsibility to control these so that there is no adverse fallout on financial markets.

Welcome change

The Budget’s approach is rightly to energise internal growth engines and better indices of well-being of the less well-off sections of the population.

A welcome change from the usual mantras and cliches on how only foreign investment, financial markets and deficit control can propel growth.

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