Encouraged by the recent victories in state elections, Finance Minister Jaswant Singh had for him an ideal background to present a hard-core reformist Budget.
The prevalent situation provides one an opportunity to conjure up an ideal Budget that could earn Singh accolades from the various stakeholders in what could be dubbed as a neo-Hindu growth rate exceeding 8 per cent a year.
Not only could far-reaching reforms be pushed through in this Budget giving the industry a fillip, it could also see Singh's index of gross national contentment soaring to new levels.
First, let us address the issue of growth, or in other words, gross domestic product. What does it require to catapult India into the 8 per cent growth orbit and make it a formidable player in the global economy?
Several areas require urgent attention. Key among them include, first, the financial sector -- where institutions need to be restructured and banks strengthened to withstand global tremors; second, the government finances -- fiscal deficit of 5.6 per cent of GDP is a big constraint to sustainable growth; third, the agricultural sector -- where value-addition can reap immense gains; and fourth, the right investment climate -- to lure billions of dollars.
Singh knows and acknowledges that the status of India's financial sector leaves a lot to be desired. The public sector banks, which till yesterday dominated business, need to be unshackled from government control and become more professional.
They require more equity to shore up their capital adequacy ratios and sharper laws to recover their non-performing assets. The government needs to reduce its stake in these banks to facilitate infusion of funds either through initial public offerings, induction of strategic partners, or by allowing higher foreign institutional investment limits. Not only will this lend the banks greater visibility, but also help them learn the private sector's ways of professional management.
Having talked of a second Green Revolution, Singh should now impart the necessary policy impetus to further the prospects of agro-exports. While instruments like farm income insurance schemes and ensuring availability of low-cost credit will take care of farmers' interests, on the reform front, the domestic prices of foodgrains need to be aligned to international prices to facilitate putting in place a stale export policy. This is vital, especially in years of good monsoon, when unlike in drought years there is significant grains offtake under the food-for-work programme.
In fact, the government's mid-year review clearly articulates the dire need for diversification. Agriculture has to transit beyond crop agriculture -- to horticulture, animal husbandry, poultry, floriculture and sericulture -- with an emphasis on grading, processing, packaging and rapid transportation. And this can be done only through greater participation by the private sector. Singh could give the desired incentives to encourage public-private partnerships in these areas.
Singh's maiden Budget of 2003 paid little attention to reforms in direct tax rates spelled out unequivocally by his task force under Vijay Kelkar. The plethora of exemptions and surcharges must go to ensure equity between taxpayers.
Tax administration has been revamped and getting permanent account number cards and timely refunds is no longer bothersome. Even on the indirect tax front, Singh could cite the blossoming of relationships with south-east Asia and cut import duties to Asean levels. He could also use his stature and persuasive skills with states for a nation-wide implementation of a value-added tax regime.
All this will still not be enough to rein in the fiscal deficit till the government controls its expenditure.
Drawing attention to the last imperative of a favourable investment climate, things are not entirely in Singh's hands. Since he brought the Foreign Investment Promotion Board under his administrative charge, there has been perceptible change in its functioning.
Inane proposals of share transfers, gifting of shares and so on will no longer require FIPB approval. Greater cooperation with his industry and commerce counterpart Arun Jaitley, could result in India emerging as Asean and China's envy in attracting foreign capital.
For the time being though, Singh has to remain content with presenting a vote-on-account, allowing the government to meet its expenditure needs for the April-June quarter of 2004-05. Nevertheless, a full Budget is not far away.