Will Modinomics get India going?

A budget targeting growth and reducing the deficit has been praised, but will it be enough to help the country regain its economic footing?

Delhi

It had been hyped as the most hotly anticipated government budget in 25 years.

Could India’s new Prime Minister, Narendra Modi, and his finance minister, Arun Jaitley, unleash the sort of economic changes that PV Narasimha Rao and Manmohan Singh, their respective predecessors, set in motion back in 1991 – changes that helped drive the Indian economy out of decades of stagnation and rescue millions from poverty?

Mr Jaitley was always going to struggle to match the expectations that had been placed upon him. Partly that was the fault of Mr Modi and his Bharatiya Janata Party, who had sought to suggest during the recent election campaign that they had a ready fix to all the nation’s many challenges. 

As the television cameras set up at gate No 1 of the parliament in Delhi captured Mr Jaitley arriving with his briefcase yesterday morning, only a handful of pundits could have been expecting anything genuinely radical. In the end, the package of measures that Mr Jaitley announced – one he described as “a budget for growth” – sought to navigate a middle way.

Most believed it was largely sensible and practical and was a good base from which to do more. However, there was no great idea – no singular vision – for which people may have remembered the budget, or that Mr Modi could have used to project himself or his broader plan for the nation.

“We shall leave no stone unturned in creating a vibrant and strong India,” said the 61-year-old Mr Jaitley, who also holds India’s defence portfolio. He has some way to go.  Growth in India currently stands at less than 5 per cent, which is good when compared with the developed nations of the West but not enough in India where around 1 million young people are entering the job market every month.

During the election campaign, Mr Modi had said he would help deliver for them.

Mr Jaitley said he hoped that within three or four years, growth would have reached  7 or 8 per cent. He also said he would try to uphold the previous government’s fiscal deficit target of 4.1 per cent of gross domestic product, and would even seek to lower it to 3.6 per cent over the next two years.

Among the headline announcements made by the new finance minister was the long-anticipated plan to raise the ceiling on foreign investment in the defence and insurance sectors, from 26 per cent to 49 per cent. Foreign companies  would like the ceiling to go even higher, but there is intense domestic lobbying to keep them.

Mr Jaitley also said the government would seek to raise £7.5bn by selling state assets.

Further, he said a tax reform would be launched this year to unify India’s 29 states in a common market. This would not only provide the federal government with more money but it would make doing business across the breadth and length of India much easier.

Mr Jaitley also said he would establish a committee to look at the issue of retrospective tax claims – a measure introduced by the last government and which was reckoned to have badly damaged India’s image as an investment destination. The British phone giant Vodafone has been embroiled in a tax row over a disputed £1.3bn since a 2007 acquisition.

In regard to the expectations he would trim the subsidies on diesel, fertiliser and cooking gas that had been enacted by the previous government, Mr Jaitley did little more than give a nod. He said subsidies would be better targeted, but did not provide details. For now, the subsidies will remain.

Some aspects of the budget priorities raised eyebrows.

Around £20m was set aside for helping build a statue of the independence hero Sardar Vallabhbhai Patel in the state of Gujarat, where Mr Modi was chief minister, while just £10m was found for improving women’s safety. Around £200m was dedicated to a programme to clean and preserve the sacred River Ganges. Duty on cigarettes leapt by 70 per cent.

Mr Modi, whose landslide election victory in May followed a campaign during which he said he would bring economic growth to India, described the budget as one that turned the “hopes and aspirations of the people into trust”.

He said: “We are going in the right direction to overcome challenges faced in last decade.”

The opposition Congress Party, which suffered its worst- ever electoral performance as it was reduced to just 44 seats, said the budget lacked any single vision and contained too many small projects.

“No concrete steps on reducing inflation,” Congress MP Shashi Tharoor said on social media. “No indication of where new jobs will come from for 12 million coming into employment market each year.”

Most independent commentators were not euphoric but believed the budget would help India regain its economic footing. “The finance minister has set the ground for repair of the economy,” said Sidharth Birla, president of the Federation of Indian Chambers of Commerce and Industry. “There has been a mix of both short-term and long-term measures geared towards boosting confidence of all key constituents”.

Rajrishi Singhal at the Indian Council on Global Relations saw the budget as a “statement of intent”. He said: “Given that they had only 45 days to put this together, there is very little blue-sky thinking. But it does lay out what they want to do.”

The economist Vivek Dehejia said two key points struck him in the budget: Mr Jaitley’s declared intent to keep with the 4.1 per cent deficit target that he inherited, and a series of measures to modernise the banking sector.

“Overall it was sensible and smart,” said Mr Dehejia. “Especially when you consider how little fiscal room he had to play with.”

Start your day with The Independent, sign up for daily news emails
News
Ben Little, right, is a Labour supporter while Jonathan Rogers supports the Green Party
general election 2015
News
The 91st Hakone Ekiden Qualifier at Showa Kinen Park, Tokyo, 2014
news
Life and Style
Former helicopter pilot Major Tim Peake will become the first UK astronaut in space for over 20 years
food + drinkNothing but the best for British astronaut as chef Heston Blumenthal cooks up his rations
News
Kim Wilde began gardening in the 1990s when she moved to the countryside
peopleThe singer is leading an appeal for the charity Thrive, which uses the therapy of horticulture
Sport
Alexis Sanchez celebrates scoring a second for Arsenal against Reading
football
Life and Style
health
Voices
An easy-peel potato; Dave Hax has come up with an ingenious method in food preparation
voicesDave Hax's domestic tips are reminiscent of George Orwell's tea routine. The world might need revolution, but we like to sweat the small stuff, says DJ Taylor
News
i100
News
Japan's population is projected to fall dramatically in the next 50 years (Wikimedia)
news
Life and Style
Buyers of secondhand cars are searching out shades last seen in cop show ‘The Sweeney’
motoringFlares and flounce are back on catwalks but a revival in ’70s car paintjobs was a stack-heeled step too far – until now
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45,000: SThree: SThree Group have been well e...

Ashdown Group: IT Manager / Development Manager - NW London - £58k + 15% bonus

£50000 - £667000 per annum + excellent benefits : Ashdown Group: IT Manager / ...

Recruitment Genius: Sales Consultant / Telemarketer - OTE £20,000

£13000 - £20000 per annum: Recruitment Genius: Scotland's leading life insuran...

Ashdown Group: Training Programme Manager - City, London

£40000 - £45000 per annum + benefits : Ashdown Group: Training Programme Manag...

Day In a Page

NHS struggling to monitor the safety and efficacy of its services outsourced to private providers

Who's monitoring the outsourced NHS services?

A report finds that private firms are not being properly assessed for their quality of care
Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

The Tory MP said he did not want to stand again unless his party's manifesto ruled out a third runway. But he's doing so. Watch this space
How do Greek voters feel about Syriza's backtracking on its anti-austerity pledge?

How do Greeks feel about Syriza?

Five voters from different backgrounds tell us what they expect from Syriza's charismatic leader Alexis Tsipras
From Iraq to Libya and Syria: The wars that come back to haunt us

The wars that come back to haunt us

David Cameron should not escape blame for his role in conflicts that are still raging, argues Patrick Cockburn
Sam Baker and Lauren Laverne: Too busy to surf? Head to The Pool

Too busy to surf? Head to The Pool

A new website is trying to declutter the internet to help busy women. Holly Williams meets the founders
Heston Blumenthal to cook up a spice odyssey for British astronaut manning the International Space Station

UK's Major Tum to blast off on a spice odyssey

Nothing but the best for British astronaut as chef Heston Blumenthal cooks up his rations
John Harrison's 'longitude' clock sets new record - 300 years on

‘Longitude’ clock sets new record - 300 years on

Greenwich horologists celebrate as it keeps to within a second of real time over a 100-day test
Fears in the US of being outgunned in the vital propaganda wars by Russia, China - and even Isis - have prompted a rethink on overseas broadcasters

Let the propaganda wars begin - again

'Accurate, objective, comprehensive': that was Voice of America's creed, but now its masters want it to promote US policy, reports Rupert Cornwell
Why Japan's incredible long-distance runners will never win the London Marathon

Japan's incredible long-distance runners

Every year, Japanese long-distance runners post some of the world's fastest times – yet, come next weekend, not a single elite competitor from the country will be at the London Marathon
Why does Tom Drury remain the greatest writer you've never heard of?

Tom Drury: The quiet American

His debut was considered one of the finest novels of the past 50 years, and he is every bit the equal of his contemporaries, Jonathan Franzen, Dave Eggers and David Foster Wallace
You should judge a person by how they peel a potato

You should judge a person by how they peel a potato

Dave Hax's domestic tips are reminiscent of George Orwell's tea routine. The world might need revolution, but we like to sweat the small stuff, says DJ Taylor
Beige is back: The drab car colours of the 1970s are proving popular again

Beige to the future

Flares and flounce are back on catwalks but a revival in ’70s car paintjobs was a stack-heeled step too far – until now
Bill Granger recipes: Our chef's dishes highlight the delicate essence of fresh cheeses

Bill Granger cooks with fresh cheeses

More delicate on the palate, milder, fresh cheeses can also be kinder to the waistline
Aston Villa vs Liverpool: 'This FA Cup run has been wonderful,' says veteran Shay Given

Shay Given: 'This FA Cup run has been wonderful'

The Villa keeper has been overlooked for a long time and has unhappy memories of the national stadium – but he is savouring his chance to play at Wembley
Timeless drama of Championship race in league of its own - Michael Calvin

Michael Calvin's Last Word

Timeless drama of Championship race in league of its own