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The Railways and General budgets – where do we go from here ?




With the horrible years of the UPA, and its total lack of governance on the economic and financial fronts, Modi presented a new face in national politics, and with the reputation of having developed a better regime in Gujarat in terms of economy and drawing industry there, this was a face that was bound to attract more people to the BJP. And so it happened in the elections, with the Congress vote share falling to the extent that its number of seats fell to a record low of 44; while the BJP vote share went up and its number of seats went up much higher, giving a comfortable majority. The stock market had already started rising even before the election results were out, with the expectation that the Modi Govt will accelerate the pace on reforms, which in turn will lead to growth of the Indian economy. The expectations by corporate leaders as well as by economists were sky-high, that drastic reforms will finally be seen, and the Indian elephant could move a bit faster (or a lot faster).
However, the market was shocked by the interim rail and general budgets presented by the BJP within a short time of forming the Government, since there was no indication of drastic (or even major) reforms. In fact, for many, it seemed like a continuation of the UPA kind of budget; there was certainly no indication of the hard decisions that Modi had earlier declared that was necessary. There was a lot of disappointment, the market reacted negatively; in fact, many railways equipment makers that had jumped up a lot in anticipation of the budgets being more reform-oriented started crashing in the next few days with the euphoria around them getting reduced.

However, there was some understanding that there was not much time to prepare an interim budget, and one should wait for a proper planned budget to see where the Government will take the economy. And now both the Rail budgets and general budgets have been presented, and the initial euphoria after the budget announcements is dying down, one should be able to make a pronouncement on the budgets from a common perspective, not from the high-flown economist language. There is a lot to be said from the budget. It tried to steer away from some of the more populist statements, such as the Railway budget not announcing any new trains, and the Union budget also not trying to make any major populist schemes. There were measures announcement in terms of intentions of reform, especially in the case of Railways where the major statement was about earning more from Railways going forward. In the general budget, there were measures that could benefit industry, such as the introduction of the GST, the reduction in corporate tax in the next few years, and so on.
However, there are issues that continue which make me somewhat hesitant about being totally positive. For an economy that seeks to become more consumption oriented (like most developed economies), the rise in service tax, potential introduction of a cess, no real reduction in the tax rates that mostly impact the middle class, means that there is less money on the table, which can have a cascading effect. For all the talk about black money reduction, as well as about the increased transfer of money to the states, there was no emphasis on accountability. There was talk in the interim budget a commission to review expenditure, but that was totally forgotten. For a country where everybody acknowledges that there is a lot of diversion of subsidy funds, one would have expected more discussion about controlling that, yet it was totally absent.
And lack of detail is another problem. It is recognized that there is a need for revamp of health and education; and what is done ? There is a reduction in the health outlay, and new IIT’s and IIM’s were announced, even though previous such announced institutions are fighting with inadequate infrastructure, some of them running out of rented buildings, and nowhere being of any class, forget world class. There is a tussle with trying to ensure that the environment is protected, and yet, it would seem that the total focus was on industry; forgetting about the cleaning of the rivers (other than the Ganga) as well as the air pollution present in Indian cities (which is now being projected around the world as one of the most polluted Indian cities, and yet the Government is totally silent as if it does not care about the citizens health which is impacted by this pollution). One would not care about these not being there in the budget, but they are not coming in anywhere.
One can go on and on, but the net result is that the budget is better than the UPA presented budget, but for those were expected drastic improvements, please wake up and smell the real world.




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