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.”