Waiting for the main act

Nguồn tin: nguontinviet.com

How do you play “Giant Steps”?

HOPES were so high for the budget unveiled by Arun Jaitley, India’s finance minister, on February 28th, that measures that would have seemed daring until recently looked underwhelming. Narendra Modi’s Bharatiya Janata Party (BJP) came to power last year on promises of economic reform. Mr Jaitley set out plans for cutting the budget deficit, reforming taxes, streamlining bureaucracy and improving infrastructure. The central bank, for which Mr Jaitley set an inflation goal of 4% from 2016-17, signalled its approval of Mr Jaitley’s fiscal plans on March 4th by trimming its main interest rate by a quarter of a percentage point, to 7.5%. Yet Mr Jaitley’s measures were incremental, not the “quantum jump” that he boasted of.

He will meet his target for the budget deficit of 4.1% of GDP this year, but getting it down to 3% of GDP must now wait until 2017-18, to allow for more spending on roads and railways. The state will bear greater risk in so-called PPP (public-private partnership) projects, and legislation will be proposed to make disputes over public contracts less frequent. Some money was found for a new infrastructure fund. But other claims pressed. The finance commission, which advises on fiscal matters, had recommended that more tax revenue go directly to states. Mr Jaitley needs their blessing to replace a myriad of state and federal levies with a harmonised goods-and-services tax over the coming year. That left him a smaller budget from which to squeeze savings.

He might have looked harder. Spending on subsidies will fall next year, but thanks largely to cheaper oil. Although he raised the prospect of replacing subsidies on cooking fuel, basic foods and fertiliser with cash payments to the poor, the BJP’s loss of a recent election in Delhi seems to have been taken as a sign that such a move would be unwise.

The measures Mr Jaitley did commit to were sparing of the government’s political capital. A plan for a national social-security system based on private insurance was sketched out. Business-friendly measures include making it easier to open or close a firm, a cut in the main corporate-tax rate from 30% to 25%, paid for by pruning tax breaks, and delaying a new regime for going after tax dodgers to assuage concerns about India’s trigger-happy tax inspectors. An e-business portal will act as a one-stop shop for 14 of the permits needed to start a business. And public banks will be managed more at arm’s length from government.

Missing, though, was a sense of the giant steps that might follow these smaller moves. All is not lost. The planned goods-and-services tax would for the first time create a common market in India. If the government can push that through, and persuade the upper house, where it lacks a majority, to pass planned land-acquisition reforms, history will judge Mr Jaitley’s budget more generously.

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