Modi government goes slow on ‘big bang’ budget reform
NEW DELHI: The maiden
budget from India’s new right-wing government has promised a return to high
growth - but disappointed some who hoped Prime Minister 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 $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
labour 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 to increase inter-state commerce would be ready
by December. Brokerage Nomura called the failure to tackle subsidies a
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.