Modi going slow on his 'big bang' budget reform
By Penelope MacRae, AFP
July 14, 2014, 12:00 am TWN
NEW DELHI--The maiden budget from India's new right-wing government has promised a return to high growth — but disappointed some who hoped Premier Narendra Modi might use his thumping mandate to unleash radical change.
The Bharatiya Janata Party (BJP) government opted for small steps in last week's budget, in what it called "the beginning of a journey" after winning in May the biggest electoral majority in 30 years.
While some economists felt Finance Minister Arun Jaitley should have been bolder, Deepak Lalwani, head of financial consultancy Lalcap, told AFP it was not "realistic to have 'big bang' reforms so quickly."
Jaitley pledged faster economic growth, tighter fiscal discipline, greater openness to foreign investment and revamped infrastructure.
But he left intact US$43 billion worth of anti-poverty subsidies — raising questions about how he will meet ambitious targets to cut government overspending.
Jaitley's predecessor P. Chidambaram noted acerbically that after criticising the previous left-leaning Congress government's subsidies as "mindless populism," the new man in the job did not touch them.
"Welcome to the real world," Chidambaram remarked.
India's hundreds of millions of poor are a vital vote bank, and the BJP and allies have their eyes on state elections this year. They control just eight out of 29 local governments, and anti-populist moves could alienate voters.
Economists have long argued that India's economic potential will only be unleashed when it curbs subsidies and ends suffocating regulation.
They also advocate relaxing rigid labor protection laws that discourage manufacturers from hiring, and easing complex land acquisition laws to boost industry.
The budget left all these issues off the to-do list, although Jaitley said he hoped a long-awaited national goods and services tax (GST) to increase inter-state commerce would be ready by December.
Brokerage Nomura called the failure to tackle subsidies a "disappointment."
But others said rather than missing the reform boat, Jaitley is playing a longer game to build consensus in a fractious democracy of 1.25 billion people in which competing business, social and political interests abound.