The Hindu Business Line : Demand-led growth: End of incentive mindset

THE Union Budget presented in Parliament today may make no overt claims to it, but it could be a definitive step towards a new philosophy of economic management.

It relies less on investment outlays than on the generation of consumer demand, leaves more money for the consumer to dispose of as she decides. A decade ago, finance ministers might have thought that announcements of budget allocations for this sector or that industry took care of a constituency's clamours for attention. Few attempts were then made to genuinely track exactly what was achieved, although "comforting noises were made about accountability at the time of presenting the next budget. This budget to the contrary makes few grand gestures of incentives or subsidies to "stimulate investment" in any category where the corporate sector is concerned.

Duty reductions on input materials and machinery have progressed one more step along predictable lines, the strategy being to bring down trade barriers and encourage production. The rate of the basic corporate income tax has been lowered to a very benign 30 per cent. It also reflects a level of confidence that the competitiveness of Indian industry can now take care of itself, given the demonstrated efficiency in doing so, i.e. by better management of cost, price and customer value - not just in India but in overseas markets.

The only jarring note seems to be the sweeping provisions envisaged in the fringe benefit taxation, which lists even sales promotion and publicity under the items for additional taxation. It seems unlikely to be passed entirely as it stands. However, it is clear that the intention behind all other tax proposals relating to the wage-earner class is to leave more in the hands of the housewife - and encourage the household to save and invest flexibly, according to the stage of its lifecycle.

Younger nuclear families thus would invest in housing, education and perhaps even gold units while the older ones might look for the mutual fund and even derivatives market for the sort of steady return they once used to look forward to from the fixed deposits and blue chips.

Thus the liberalised economic thinking laid down over a decade ago enabling the market forces to drive at least the industrial, and services sectors more directly has been taken forward another step. All this would not have been possible or conceivable but for the current state of buoyancy in markets, and the economy in general - at least where the organised corporate sector of the economy is concerned. Dark clouds continue, however, to loom over the rural employment scene. Diversification of the rural population into fisheries, dairy, animal husbandry or fruits and vegetables can only take place when the market pull for them too is triggered by appropriate institutional and legal changes. Either co-operatives or corporate units will have to ensure the farmer steady volumes and reasonable prices. To some extent the opening up of the organised retail area might help, yet one day, the government will have to bite the bullet on this one. Just as they have had to over disinvestment, FDI, or the financial sector, the policy makers will have to free farming and farmers from the nanny state mentality.

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