Go for broke

Go for broke

This time, make the budget a bold one that changes the narrative about India.
Finance minister Arun Jaitley will present his fourth budget in a few days in an unfavourable economic environment. Global trade has collapsed and demonetisation's fallout has worsened a domestic slowdown which was already underway. The budget represents an opportunity to change the narrative and revive animal spirits. Prime Minister Narendra Modi has shown that he can take bold decisions. He has overseen a robust overhaul of the country's foreign policy, which is radically improved as a result.Now a similar approach must characterise economic policy . The time for incrementalism has passed. India needs big bang reforms.
BJP rode to power on the maxim of “minimum government, maximum governance”. Nevertheless, under NDA India remains an over-regulated state characterised by poor governance. Ease of doing business is an important aim of government, but results so far have been disappointing. The budget presents an opportunity to change the narrative by simplifying direct tax laws. India's tax rates can be reduced to East Asian levels and disputes dramatically compressed.Tax reform therefore should be the budget's centerpiece.
The statistics ministry's GDP estimate for this financial year shows that new investment will contract even without accounting for demonetisation's effects. CMIE data on new investment proposals shows that the situation worsened further with demonetisation. Government can combat this challenge by reorienting expenditure towards public investment. Another solution is to leverage its ownership of a scarce factor of production: land. Government companies own prime land which are inadequately utilised. If ways are devised to lease land for private economic activity , it will boost investment. This is a measure that will have a quick impact even as other reform measures create a favourable environment for durable economic growth.
It defies reason that government today should insist on ownership of businesses such as aviation. Taking a leaf out of the first NDA government's playbook, Jaitley should announce a privatisation programme and use the proceeds to cushion a transition to lower tax rates. Government must keep in mind that at least 10 million young people enter the work force each year. It's therefore essential to craft an economic policy that creates jobs. That is what makes this budget critical, as it can be presented before political considerations overwhelm economic policy making in forthcoming pre-Lok Sabha election years. Jaitley must go for broke.