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The budget: Should have opted for a higher fiscal deficit to stimulate growth

Five-weeks were a reasonably long time for the new finance minister to come out with a few big-bang reforms. The BJP was returned with an absolute majority; with allies, the NDA further improved its strength in the Lok Sabha. In the Rajya Sabha also the party is heading towards the majority in the next few months. Thus in the first budget after the 2019 elections, the BJP had the opportunity to come with major reforms designed to stimulate growth. Sadly it missed out.

Three areas deserve quick attention: the agrarian economy, labour laws and step up of investments that would ensure growth in jobs. Nirmala Sitharaman should have continued the initiative she displayed as defence minister, to opt for structural and fundamental changes in these areas. We indicate how:

For decades since the green revolution in the late 1960s, administrators have been content to look at modest growth in agriculture, missing out opportunities for a Hanuman jump. I remember Yojana Bhavan expressed dismay, if not consternation, when suggested to attempt double-digit growth in agriculture. Member-Agriculture, Abhijit Sen, wondered what to do with the excess grains. He was content with a 3 to 4 per cent growth, worried over handling surplus and was comfortable in managing shortages.

China, with whom India needs to balance its trade, is importing food grains, like soya, in large quantities. It should be possible to meet this. For this can be attended, the urgent need is to agglomerate the small landholdings. This can be done by permitting lease of land over 15 years and more without alienating ownership and simultaneously ensuring the sanctity of contracts. This single step will help introduce science, technology, mechanisation and management and help bridge the yawning gap in productivity attained in other countries. This, in turn, will also pave the way for a rapid expansion of the Farmer Producers Organisations (FPOs) as companies. These, in turn, can lead to value addition through food processing and exports.

For long, the country has been talking about labour reforms but with little progress. Our labour laws are a deterrent to the expansion of job opportunities. Large employers, who once focused on massive employment of labour, have been regularly and continuously working on saving on labour. Reforms should focus on encouraging employment through liberal incentives freedom for contract labour as also provision for easy exit from business.

In the present depressed state of investment, the budget should have attempted to stimulate investments by opting for a higher fiscal deficit. Inflation has been maintained low; it will be worth risking a higher rate of fiscal deficit by pumping more money into the economy.

The disinvestment programme should have been given a much higher priority. This could include diluting the government’s ownership in banks insurance companies…
China has been deriving the benefits of massive step-up of investments in infrastructure, especially railways, roads and bridges, power utilities and basic industries like steel.

Finance Minister Nirmala Sitharaman did conceive of such big plans for defence production and exports. Such an approach could have been adopted in framing her maiden budget.

Let this not be a case of missed opportunities. Can we look forward to such plans in the independence day announcements by the Prime Minister?

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