Jaitley’s remarks show big reforms are in offing
It seems like those who were disappointed with the Modi Government's plain Jane Budget earlier this year, could have ample reason to smile when Finance Minister Arun Jaitley presents the Union Budget next year. At a Confederation of Indian Industries-World Economic Forum event on Wednesday, Mr Jaitley hinted at a slew of reforms that financial experts in this country have been demanding for decades. He spoke of reforming India's archaic labour laws and fixing its ridiculously anti-industry land acquisition law that was enacted by the previous Congress-led UPA regime in the last phase of its decade-long tenure. Mr Jaitley also said that the Government is keen to get the amended insurance Bill, which raises foreign direct investment ceiling in the sector from 26 per cent to 49 per cent, passed in the Winter Session of Parliament. He even acknowledged that he was considering the privatisation of some loss-making public sector units. Additionally, Mr Jaitley addressed the concerns of many foreign investors regarding the UPA regime's damaging legacy of retrospective taxation, which he rightly trashed as “one bad idea”. He also touched upon the issue of crony capitalism, particularly with regard to the allocation of national resources, and assured that the Government would put in place a “fair system” which would do away with discretionary powers and bring about greater transparency.
Mr Jaitley's comments assume greater significance when viewed together with Prime Minister Narendra Modi's statements on the issue. Earlier this month, at an informal gathering with bureaucrats at his residence, Mr Modi called for a “transformational” Budget that “would be full of new ideas”. Reportedly, his Government has already started work on this matter, which makes sense given that Mr Modi's Budget team is now in place. The Chief Economic Advisor's post, which had been lying vacant since Mr Raghuram Rajan was moved to the Reserve Bank of India as Governor, has now been filled. Mr Arvind Subramanian is the new chief at North Block. The Prime Minister has also appointed a new Secretary for the Department of Economic Affairs, Mr Rajiv Mehrishi. It is no coincidence that Mr Mehrishi, in his previous assignment as the Chief Secretary of Rajasthan, had, in fact, helped give shape to the State Government's recent labour law reforms, which have received rave reviews.
But while there is every reason to be optimistic about the next Budget, it is also equally important to temper one's expectations in keeping with the socio-political and economic realities of the times. This, in fact, was the crucial sub-text of Mr Jaitley's comments on Wednesday. Mr Jaitley made it amply clear that his regime was not in favour of any sort of “big bang” reforms, radical legislations that would bring about sweeping changes. Instead, he said that the much awaited second generation of reforms would come but, given the complexity of the Indian socio-economic structure, be rolled out in a gradual, incremental fashion. Hence, we see that while diesel and petrol have been de-regulated, the Government has not removed subsidies on food and kerosene. Meanwhile, it would help if the RBI lowered interest rates to match the happening changes.