In short, the Budget for 2015-16, to be presented to Parliament by Finance Minister Arun Jaitley by February-end, must not only reflect the spirit of the directions that Prime Minister Narendra Modi set for “transforming” India, before the applauding global leaders, but also embody in concrete terms a sound growth and jobs strategy.,

Broad indications given by the Finance Minister himself cover a spectrum of structural reforms to carry forward the work of easing regulatory barriers for doing business in different sectors and ushering in of a regime of assured tax stability for investors. The Finance Minister has also to provide for a certain order of public investment for infrastructure while remaining committed to prudent fiscal management.

His pre-budget discussions so far have thrown up some knotty problems including land and labour reforms and the degree of privatization that the Modi Government could launch in core sectors including coal and mining in order to operationalise the Prime Minister’s “minimum government and maximum governance” benchmark.

But what is causing some concern, not only at home but also abroad, is the current efforts to push reforms through ordinances, rather than by Parliamentary votes, thus raising credibility issues on constitutional grounds as well. With as many as eight ordinances already promulgated, President Pranab Mukherjee has also voiced caution on the Government’s relentless pursuit of reforms through ordinances.

Hopefully, as the President himself suggested, the Government and the opposition would make efforts before the budget session to bridge differences to the extent possible, at least to get through with some of the important enactments which have been before the country for quite some time. The constitutional requirements and the precedents must guide the actions of Government.

Be that as it may, the Budget will have quite a substantial order of resource mobilization efforts in various ways to finance rising expenditures while offsetting the incentives, exemptions and reliefs where dictated by social and political compulsions. Mr Jaitley has not ruled out changes in structure of direct taxation though his efforts would be to collect more through indirect taxes.

Given the signs of growth recovery, though lacking in vigour, in the current year, the Finance Minister would be targeting a stronger growth in GDP of the order of 6 to 6.5 per cent in the coming fiscal year which would help to generate larger revenues to meet the economic and social expenditure commitments while adhering to a roadmap on fiscal consolidation.

The fiscal magnitudes will vary considerably with the implementation of the 14th Finance Commission recommendations for the five year period April 1, 2015 to 2020. A much larger share of devolution of centre’s tax revenues to states has reportedly been proposed by the Commission headed by former RBI Governor Dr Venugopala Reddy. How the Centre makes up for the changing budgetary dimensions remains to be seen.

There are some thorny issues for Centre-State relations, especially the demand for “special status” from the bifurcated Andhra Pradesh promised by the UPA Government last year while states like Bihar, which go to polls later this year, have been making such demands in recent years. The Modi Government is non-committal on this as also on what it would do in the matter of allocation of development expenditure for states outside the framework of the Finance Commission’s recommendations.

However, global conditions have turned highly favourable for India and other oil-importing countries, with the sharp fall in international crude prices, and it has already helped the Modi Government to begin cutting subsidies and effect deregulations in the petroleum sector. Both WPI and CPI inflation have been trending down over recent months and this has also opened up the possibility of easing of monetary policy hitherto constrained by elevated levels of inflation.

The RBI Governor Dr Raghuram Rajan has already effected a rate cut on January 15 and linked further easing with the budgetary moves and supply side issues to be sorted out by Government to gain control over aggregate demand in the economy. The Budget should set the contours of the economy which would provide a basis for the monetary policy for the future.

International institutions have recognized that India, with a stable government and commitment to reforms, is better placed than other emerging market economies and have forecast growth to rise to around 7 per cent over the next two years. IMF world economic outlook update on January 20 has projected growth to rise from 5.8 per cent in fiscal 2015 to 6.3 and 6.5 per cent in the two fiscal years, 2015/16 and 2016/17.

Of interest is the latest IMF projections for the two years which indicate that India’s growth estimated at 6.5 per cent in fiscal 2016/17 would be higher than China’s 6.3 per cent. If so, it would be the first time that India can overtake China in growth number at least. China, the world’s second largest economy, grew at 7.4 per cent in 2014, the lowest level for 24 years of its reform era dating back to 1980s.China is consciously undergoing a rebalancing with emphasis on quality of growth within a range.

Certainly, India has to perform beyond policy declarations, demonstrating macro-economic soundness and letting reforms take hold to move the economy to a higher growth trajectory, before foreign investors, let alone domestic cheer-leaders of the corporate world, respond to the great expectations aroused by the Prime Minister himself. (IPA Service)