"I must be cruel only to be kind." – Pranab Mukherjee
So, Pranab Mukherjee has spoken. And spoken rather well. Hamlet was quoted, philosophy was preached. And another non-reformist/status quo budget presented before the Parliament. All this after the soap opera, which the Railway Budget turned out to be.
Some light because there seems to be a subtle effort to move towards a uniform tax regime, the GST. The gradual shift can be considered a positive sign, but its clearly not enough. Income Tax slabs, as always, have been adroitly shuffled around. Quite astutely, Pranab da has given some from one hand, while taken a bit more from the other. The expansion of the Service Tax base, and the consequent increase of 2% is just an example.
We can talk at length about the positives and negatives, for both the common man and India Inc. But there is one underlying statement in this budget - The fact that no big ticket reforms have been introduced. And that it will have to wait till 2014 now.
Economic Implications
The second wave of Economic reforms, popularly termed as Reforms 2.0, is not something which we desperately need right now in 2012-13. In an ideal world, where good economics meant good politics, we desperately need it at least 5 years ago!
A fiscal deficit of 5.6%, and a GDP growth of less than 7%, is not the kind
of numbers any government would be proud of. And those numbers are what they tell you. Look at the books closely, and its worse.
The fact is that you can fool the people by comparing yourself with the world economy. 7% against 3% . But cannot fool the science, the science called economics!..
This country need a >8% GDP growth rate to sustain the shameless policy of populist schemes and the never ending saga of subsidies. The moment you slip below 8% over a considerable period of time, you end up disturbing the fiscal equilibrium of the economy. That is precisely what has happened over the last 4 years.
And to achieve a >8% GDP growth, the economy needs some big-ticket reforms. And since its unlikely that we'll have that before 2014 now, as the 2013 budget will be the last one for this dysfunctional government, the wait seems to be perpetual.
Political Implications
This May will mark 8 years of the UPA rule. 8 years of a stable and contiguous coalition government. 8 years for a person in office who was known as the architect of the 1991 economic reforms. The script could not have been better for Manmohan Singh. And the deviation from that script could not have been worse either. For these 8 years has been a massive opportunity lost, a disappointment of gigantic proportions.
Manmohan Singh, in 2004, had a great opportunity to continue what he left off in 1995-96. The tars had aligned, almost mercurially, to hand him the post which matter
s the most. He was the cynosure of all eyes. The Left was vilified, for more than 4 years, for being regressive and acting like a virtual opposition. The nation went to polls in 2009, and the people empathized with Dr.Singh.
2009 was probably THE most decisive and definitive mandate for an incumbent government in more than two and a half decades.
What has followed since then has been even more historic! .. A facade in the name of politics, a farce in the name of governance, a travesty in the name of government.
"Power Corrupts. And Absolute Power corrupts Absolutely."
The policy paralysis at all levels over the past 3 years has been remarkable, considering the caliber of the people in office. As far as Manmohan Singh is concerned, the last 8 years might just have transformed his legacy, from one of that of a reformist to one of that of a dormant and passive leader.
He, most probably, will continue in office till 2014, much in the same vein. But when he leaves office in 2014, he might just realize that he has left the Indian Economy exactly where he took it in 1991. Therein lies the Rub!
And that will be his biggest failure.
