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Lessons of India’s budget

5 1 14

Life is never perfect, and Union Budgets are just one example. But in the case of this year’s Interim Budget, it does seem like the glass is at least half-full in the sphere of economic governance at the Centre, even if broader concerns about India’s direction remain. The Budget has been described as populist, but one could alternatively characterise it as providing a mild fiscal stimulus, which may not be a bad thing at this juncture, when India’s economy is still struggling to get out from under the overhang of bad debt accumulated in prior years.

The slight slippage in the FRBM (Fiscal Responsibility and Budget Management) target is not too much of a concern, and the transfers—implicit and explicit—that will lead to this slippage have been designed relatively well. The key idea here is that transfers are being achieved through cash payments into bank accounts, and through income tax rebates (an example of what economists call “tax expenditures”).

A greater concern is what is happening fiscally at the level of the states, and in the realm of state-owned enterprises. Problems there are contingent liabilities of the central government, and need policy attention, in the form of improved budgeting practices by the states, continued privatisation, and strengthening of the tax administration and tax capacity for states and for cities. But those issues could not be part of an Interim Budget.

The Budget also........

© The Financial Express