Setting the right tone

Very rarely has a Finance Minister inherited such a heavy burden of expectations as Arun Jaitley did. He has no magic wand to make the country’s economic and financial ills disappear all of a sudden. Despite that, Jaitley has done remarkably well in his maiden Budget.

Most importantly he has set right the tone at the top. Regrettably in the last few years, the industry and investors were hounded and vilified. As media reports and independent analyses have shown, most of the pretexts were flimsy, or worse, goaded by ulterior motives.

Fiscal deficit By diluting the retrospective tax amendment, the Finance Minister has sent the important signal to investors that instances of retrograde taxation in India are an unfortunate aberration and not the norm, though I hoped that he would scrap retrospective taxation altogether.

It is to Jaitley’s credit that he has not allowed the fiscal deficit to exceed what P Chidambaram had described as “the redline.” He is right in pointing out that even at present level, the deficit is alarming and it needs to be brought down to 3.6 per cent of the GDP. One needs to applaud the Finance Minister’s vision.

It would have been easy for him to collect brownie points by announcing a bigger hike in standard deduction or other direct tax exemptions. Realising that individual savings are necessary not only for the overall capital formation in the nation but also to give a stimulus to banks and NBFCs, the Finance Minister has rather astutely increased the investment-led deductions.

Insurance cover The hike in the FDI limit in the insurance sector had been delayed for over a decade now, affecting insurance penetration. Barely 5 per cent of the population of India has insurance cover, which shows that State-run insurance enterprises have been woefully inadequate in fulfilling their mandate of providing financial cover to the nation.

This lack of protection is all the more glaring because over four-fifths of India’s working population is employed in the unorganised sector and therefore beyond employer-sponsored insurance.

In view of insurance being a capital-intensive segment, the sector direly needed a fresh dosage of investments that could allow existing players to expand their reach and offerings. Also, from the macro-economic perspective, FDI in a financial services segment is a far better way to bring in investments than to depend upon investments in the equity market, which are notoriously fickle. The increased focus on the social sector and announcement of new schemes were imperative. One cannot help but question the wisdom of the doubts expressed by certain people over the Finance Minister’s decision to establish new IIMs, IITs and AIIMS.

The Government’s raison d'être is not to create exclusive intellectual clubs for them but to provide quality technical education and medical reach to millions of young Indians who, if not equipped with proper skillset, will be left out in India’s onward march.

As the Chairman of one of the IITs, I must underline that India’s educational institutes should not aspire to achieve greatness by creating scarcity of seats and admitting only those who are intellectually well-endowed, but by pursuing world-class research and enabling every student to fulfil his/her true potential.

The Finance Minister’s maiden Budget is a similar exercise. It subtly takes sufficient steps to open up new vistas for Indian industry.

The writer is Founder and Chairman, Max India Ltd

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