The FM is expected to be a cross between Ma Durga and Santa Claus
Keeping the goalposts in place when the football game is on is the best signal of
Roopen Roy (Views are personal)
In most countries, the Budget is a process of raising resources through taxation
and an authorization for spending them for designated activities of the nation.
In our country the budget is far more than that. It is a pulpit for making policy
announcements, launching new projects, informing the citizens about the state of
the nation and its economy and setting the directions for the journey specially if
a new government has come to power. The FM in India is expected to be a cross
between Goddess Durga , who slays the demon and eradicates all evils and Santa
Claus known for his boundless munificence and bounty. No FM can measure up to
such high expectations.
The courage of the FM comes through not his long speech or his promises. The
courage quietly comes through in what he has done or , more significantly, chosen
not to do. He has not listened to the advice of certain Indian economists ensconced
in cooler climes who have goaded him to provide huge fiscal concessions and
embark on a bold infrastructure spending spree, fiscal prudence be damned and
let inflation devour the hindmost. He has stuck to the fiscal deficit target of 4.1%
of GDP set by his predecessor. It is an act of fiscal prudence that also has a deft
political twist to it.
He has taken a significant step to lift business sentiments and bring back the trust
and confidence of foreign investors. Global companies have not been complaining
about the rate of taxation in India. Large reputed Fortune 500 companies were
worried that they were not able to predict with certainty their tax obligations
because of retrospective amendments to the Income tax Act, confusion about
transfer pricing norms and an aggressive tax administration out to collect more
by every means. Imagine how Messi and Klose will feel on Sunday if the referee
changes the goalposts when they are kicking the ball in and reserves the right to
disallow goals with retrospective effect!!
The FM is also putting in place dispute resolution mechanisms so that investors
can focus on the market and not fritter their time in the chambers of lawyers or
courts battling tax collectors! He has promised a “stable and predictable taxation
He has vowed to clean three things in his maiden budget : the Ganga (Rs 2037
crores) , the banking system (by infusing Rs 240,000 crores ) and black money
(he has promised “bold steps”) . If that is not bold in its aspiration –what is?
By allowing up to 49% in defense manufacturing, he has encouraged the flow
of investments and technology in defense production. Today we buy outright
from foreign suppliers of defense and military equipment .So long as we spend
on defense equipment (and we are one of the largest buyers), it is better to
manufacture them in India creating jobs, absorbing new technology and paving
way for R&D spends and innovation.
Likewise Insurance is highly capital-intensive and needs global networks to
compete. Lifting of the FDI limit to 49% will enhance the interest of global
players. Although hidden in the forest of his long speech, his announcement of
e-commerce platforms will be keenly watched by foreign investors and already
consultants are beginning to pour over the fine print because whether it is the devil
or the angel it is always in the details. The FM has said that FDI in manufacturing
is on the automatic route. His exact words , “ The manufacturing units will be
allowed to sell its products through retail including e-commerce platforms without
any additional approval.” Even today e-retail and e-commerce are rapidly growing
across the world. Amazon, for instance, is one of the largest retailers on this planet.
If FDI is allowed to come in to set up e-commerce platforms, a quiet revolution in
retail has just been ignited.
Given the constraints of time and the need to do some tight-rope walking on fiscal
deficits and tax provisions, I would have a lot of sympathies for him.