Smarten the budget: Fiscal loosening is not reform, boosting productivity and slashing red tape is–Times of India–28.12.2017

In a few weeks the Narendra Modi government will unveil its last full budget. It will be presented on the heels of a disruptive year which was characterised by a slowdown in economic growth and a transition to Goods and Services Tax (GST). The combined impact of these factors can lead to a short-term slackening in the pace of tax collections and a hunt for ways to boost growth. Proposals to deviate from government’s roadmap on fiscal consolidation are back on the table as a way to offset a slowdown. This is a bad idea and deserves to be rejected.

Government runs a fiscal deficit, or borrows to spend more than it earns. Beyond a point, it has adverse consequences such as inflation and macroeconomic destabilisation. There is, therefore, a roadmap in place to curtail the relative size of deficit. We don’t have a reason to deviate from it as no durable solution to economic challenges, including agrarian distress and jobs shortage, will arise from borrowing more. The solution should instead focus on increasing productivity in agriculture, helping entrepreneurs create more jobs and reforming the creaking and middleman-dominated welfare system.

An important challenge facing agriculture is that the technological revolution has passed it by. Government has a crucial role to play in creating a hospitable environment for new technology. In addition, it must permit farmers to contract with all kinds of players. There is enough evidence that private sector players are able to establish durable linkages with farmers which includes introduction of cutting edge technology. Today, the overburdened farmer puts up almost 80% of agricultural investment. Government needs to open the door for others to pitch in.

Intertwined with agrarian distress is a jobs crisis. India simply does not generate enough decent jobs for its young. A robust manufacturing sector is essential to deal with this problem. The only way to bring this about is to drastically cut red tape which inhibits expansion of existing firms and entry of new ones. Reducing bureaucracy needs to begin at home. Thanks to an oil windfall, India’s subsidies as a percentage of GDP has declined over the last three years to 1.53% in 2016-17. This needs to be supplemented by hastening the rollout of direct benefits transfer, which will cut out middlemen and offer citizens choice in spending. These reforms should be the budget’s focus.
This piece appeared as an editorial opinion in the print edition of The Times of India.
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via Smarten the budget: Fiscal loosening is not reform, boosting productivity and slashing red tape is

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