In 1992, when what seemed a rickety government headed by Pamulaparthy Venkata Narasimha Rao came to power, India’s economy was in crisis. Foreign exchange reserves were low, expenditure had gone out of control, and the delivery of government services was abysmal. The Prime Minister bypassed party satraps and chose a bureaucrat, Manmohan Singh, as his Finance Minister. Subsequently, he encouraged Singh to present in Parliament a union budget that represented a complete break from the philosophy of the past, that government and government alone was to be encouraged and nourished. Although Manmohan Singh revealed his temperamental aversion towards giving tax benefits to Indian citizens, reserving largesse to foreigners (such as the giving away of $12 billion to Russia by accepting a rupee-rouble exchange rate that was heavily and unrealistically skewed in Moscow’s favour or by cutting duties on computers so that Indian companies in the field would find themselves at a disadvantage when pitted against foreign competitors). During his tenures as both Finance Minister as well as Prime Minister, Manmohan Singh refused to lower tax rates or to give any significant concessions to the middle class that is the true driver of innovation and growth in India.
However, despite his parsimony towards citizens of his own country (which resulted in policies that helped lead to the defeat of the Congress in the 1996 polls), it is a fact that Manmohan Singh was a trailblazer in crafting a budget, by seeking to return the country to the more business-friendly days of Finance Ministers such as John Mathai or Shanmukham Chetty, at least for foreign investors and companies even while these predecessors had sought to empower domestic private industry. This was, of course, before Nehru returned to the “socialism” of his college days and began a process of shrinking the Indian private sector.
Fortunately for the country, the minister in charge of the Industries portfolio, Narasimha Rao himself, slashed away at the licence-permit raj, cutting at the powers of the bureaucracy and thereby freeing domestic private industry in India from a few of the restrictions that had crippled it for decades.
In 1947, private industry in India was much bigger than that in Japan, while the large-scale private sector in South Korea was non-existent. By 1964, when Nehru passed away, both countries had overtaken India, and by the close of Indira Gandhi’s reign in 1984, were so far ahead of India in per capita terms and in terms of the turnover of private enterprises that making a comparison between a minnow such as India and giants such as Japan and South Korea would be laughable.
Although the private sector improved its relative position somewhat during 1992-2004, when the UPA came to power, in a few years the Nehruvian tendency to enforce a stifling grip over non-governmental entities became manifest, thereby once again dampening the prospects for private industry in India.
This columnist has regarded Narendra Damodardas Modi as the fittest individual to be the PM of India since 2006, and therefore expected the first Modi-era Union Budget to be as much of a break from those of the previous ten years as the Manmohan Singh budget was in 1992 from its predecessors.
After all, the BJP had repeatedly told the country that the economy was in crisis, needing major surgery for recovery. In other words, a budget that either presented a much-simplified Direct Tax Code or set in train the process for generating one.
A budget which slashed income-tax rates to 30% only for those with an income above Rs 1 crore a year, and 20% for those with an income between Rs 1 crore and Rs 50 lakh and 15% for incomes from Rs 12 lakh per year to Rs 49 lakh, followed by a census on taxpayers and by mandatory confiscation of property valued at 300% of tax owed (rather than prison) for cheaters.
A budget which unleashed the “animal spirits” of both business as well as the entire working population of India through bold steps that may annoy Chidambaram’s favourite, Wall Street, but which would make sense to Indian professionals and companies. This did not happen.
The first Union Budget of the Modi government leaves tax rates unchanged and leaves alone matters such as reforms in miscellaneous markets. However, while Arun Jaitley’s budget is unlikely to get classed alongside Manmohan Singh’s in 1992, or even P. Chidambaram’s in 1997, it is much more than simply a collection of measures put together by bureaucrats and presented in the practiced prose of the Finance Minister.
There are tantalising elements of ModiVision in the budget, although admittedly hard to discern at a first reading.
Hopefully, the months and years ahead will witness the seeds of reform studded within the budget morphing into procedures and policies that unlock the creative and entrepreneurial energies of our citizens in ways that government overlordship have thus far made impossible.