Why this Budget is a challenging one for the Modi government

The Budget will indicate where the Modi government stands on reforms, growth and development, notes A K Bhattacharya, Editor, Business Standard.

The Union Budget to be presented this Saturday is keenly awaited by industry.

Expectations are running high because the Narendra Modi government's first Budget last July was largely seen as a disappointment.

It was argued then that the absence of big-ticket reforms and a broad-canvas strategy was probably due to the fact that the Budget had to be prepared in a relatively short time as the government had been formed less than two months ago.

Also, the finance ministry had no chief economic advisor and the government had not put in place its own Budget team.

Merits of such an argument will always be debated.

Remember that the Narasimha Rao government's first Budget in 1991 lacked neither a broad strategy nor big reforms even though it was prepared in a shorter time and by a team that mostly belonged to that of the predecessor government.

In defence of the Modi government, however, it would be pointed out that the unprecedented economic crisis of 1991 must have forced the Narasimha Rao government's hands in presenting what turned out to be a landmark Budget.

There was no scope then for any delay in action.

The economic challenges facing the government now are simply not comparable.

The situation today is different even otherwise.

Apart from the advantage of time, the finance ministry now has a chief economic advisor and a new finance secretary in addition to the benefit of advice from well-known economists now at the helm of National Institution for Transforming India Aayog.

The forthcoming Budget, therefore, is eagerly awaited.

It will obviously be judged as the first big economic policy statement to indicate where the Modi government stands with regard to its convictions on reforms, growth and development.

Not surprisingly, the Budget being prepared in the finance ministry has had more than its normal share of inputs and advice from the Prime Minister's Office.

It will, therefore, be reasonable to expect the coming Budget to reflect the concerns and aspirations of both the PMO and the finance ministry.

What will they be? Here is an attempt to outline what one could expect the Budget to focus on.

First, the Budget has to focus on the many programmes Narendra Modi has launched in the last few months.

It will be interesting to count the number of times the Budget speech refers to the many slogans that the prime minister has coined to propagate his pet schemes for economic development.

There are quite a few of them: Jan Dhan Yojana, Pahal (Pratyaksh Hastantarit Laabh or the Direct Benefits Transfer scheme), Swachh Bharat and, of course, the much-talked about schemes on 'Make in India', creating Digital India and setting up 100 smart cities.

Secondly, industry and economists alike would expect a clear indication from the Budget of the government's broad strategy on how it hopes to tackle the political challenges of getting some of its key legislative changes passed by Parliament at a time when its numbers in the Rajya Sabha are not enough and it does not enjoy friendly relations with political parties that have the necessary numbers in the Upper House of Parliament.

Announcements on allowing a higher foreign investment limit for the insurance sector or diluting the problematic provisions in the land acquisition law through ordinances show the government's intentions, but industry would respond to these changes with concrete investment proposals only when they are given an idea of how the government plans to overcome the political roadblock in Parliament.

Thirdly, the Budget will be expected to lay out the road map for the government's promised fiscal consolidation plan.

So far, the finance minister has admirably stuck to his commitment to reining in the fiscal deficit to the targets he had earlier announced.

The Budget for the next financial year will have to project numbers on revenues and expenditure that are credible. Additionally, it must also outline a plan that helps the government achieve fiscal consolidation without squeezing capital expenditure.

Finally, the key challenge of reviving investment and reforming the taxation system will have to be addressed through the Budget.

The demand for higher investment is likely to tempt the government to go in for short-cut methods by increasing public investments, but these may not yield the necessary outcomes and, worse, may undermine efforts towards fiscal consolidation.

Equally important would be to reform the tax administration system, rationalise tax rates and indicate a realistically achievable timeline for introducing the much-awaited goods and services tax regime.

Expectations indeed are high and meeting them is perhaps the forthcoming Budget's biggest challenge.

• Budget 2015: Complete Coverage