Whew!

The budget is sound in logic; the market is too clever by half

For a man derided by former finance minister P Chidambaram for his knowledge of economics as only sufficient to be scribbled on the back of a postage stamp, prime minister Narendra Modi has delivered a pragmatic and elaborate budget aimed at reconditioning the economy left wallowing in helplessness by his predecessor’s regime. In fact, finance minister Arun Jaitley has been graceful to overlook the previous government’s ham-handedness in running the economy to the ground through sheer ineptitude in the past four years. Jaitley must be congratulated for retaining his focus through his 43-page budget speech in presenting clear-cut objectives and a clean roadmap to make them happen. Unfortunately, he was rushed into taking an unprecedented five-minute break, midway through his speech, though this is not the subject of our present discourse. His budget not only defines the government’s immediate goals, but also tells us how it plans to stabilise the economy over the longer term, through active interventions in four distinct areas: agriculture, manufacturing, real estate and urban development, and the capital market, all of which should also travel the distance in generating gainful employment for millions of young citizens, something that the previous regime ignored through its initial years of 8-9 per cent economic growth. This year’s budget also lays significant emphasis on resolving the constraints facing the power sector to fire the growth engines of the economy. In the farm sector, the finance minister has promised to overhaul food and fertiliser subsidy schemes, while empowering farmers through the pradhan mantri krishi yojana and the agriculture infrastructure fund. He has also proposed to create a Rs 500 crore prices stabilisation fund to insulate both farmers and consumers from wide fluctuations in food prices. Jaitley has also made a gigantic effort to invigorate the manufacturing sector that has been facing a death knell in the wake of Chinese onslaught, against which the previous dispensation did not erect robust defences. In doing so, the minister has carefully calibrated his tax handle with fresh policy options to boost investment in manufacturing. Besides excise and customs sops, he has allowed up to 49 per cent FDI in defence; allowed sale of goods manufactured by foreign companies through local retail and e-commere channels without obtaining additional approvals; created provisions for industrial corridors and a hardware corridor in Kakinada; and also laid bare his intention to resurrect the SEZ sector. Besides providing gainful employment to an army of skilled, semi-skilled and unskilled workforce, the huge urbanisation and industrial corridor plans should boost cement, steel and power consumption. Jaitley has handsomely rewarded the capital market by providing tax sops to foreign portfolio investors; promising to overhaul the Indian financial code; liberalising the ADR-GDR regimes; introducing the Bharat depository receipts scheme for multinational companies; and introducing a common KYC code and demat account across the entire financial sector. He has also announced an ambitious public sector disinvestments plan of Rs 58,425 crore for this fiscal. The stock market has cheered the BJP from the sidelines for far too long in the run-up to the general election earlier this summer, and subsequently after government formation by pushing the benchmark indices through ridiculously high levels. It should have turned ecstatic today, just as we do in our special budget issue in your hands this morning. Instead, taking a cue from The Wolf of Wall Street, traders responded in a wishy-washy manner through yesterday’s session, to quietly book handsome profits. For, they believe in the dictum made famous by the epic’s protagonist Jordan Belfort: “Move the money from your client’s pocket into your pocket.” For those left wondering at what hit the Street yesterday, we would advice you to wait for a few more days before it starts climbing once more. This time to stratospheric heights.

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