Changes Expected from Upcoming Budget

Source-This post on Changes Expected from Upcoming Budget has been created based on the article “Budget must signal change” published in “Business Standards” on 4 July 2024.

UPSC Syllabus-GS Paper-3- Indian Economy and issues relating to Planning, Mobilization of Resources, Growth, Development and Employment

Context– The article highlights the importance of the upcoming Budget to usher in transformative changes focusing on employment and rural distress relief. It should offer sustainable jobs and dignity through employment, rather than mere welfare provisions.

What are the issues plaguing Indian economy?

1) Optimal Land Use-Land in India is currently underutilized, allocated to unproductive farms and sprawling urban areas instead of compact and efficient urban centers.

2) Capital Market Development -India’s capital market is not able to develop fully because it has to finance a large fiscal deficit of 8-9% of GDP. This ties up resources that could otherwise fuel private sector growth.

3) Faulty Disinvestment Approach-The current disinvestment system, which involves setting targets, has proven ineffective. Directly transferring state assets to selected corporations, resembling Russian oligarch-style privatization, is not the appropriate approach.

4) Sustainability Concerns -Business lobbies are pushing for additional production-linked incentive schemes, seeking more subsidies. However, these schemes are not sustainable for promoting   private sector-led growth that generates more jobs.

Read More- An analysis of PLI (production-linked incentive) scheme

What should be the way forward?

1) Factor-market Reforms-There is a need to promote factor-market reforms such as land, labor, capital, and digital public infrastructure, especially focusing on enhancing our digital public infrastructure.

2) Fiscal Consolidation-The goods and services tax (GST) has finally stabilised and is generating more revenue. Thus, fiscal consolidation should be pursued more aggressively.

3) Reforms in Disinvestment-

A) Transparent processes, competitive bidding, and earmarking funds for worker compensation are important for successful strategic disinvestment.

B) Open market sales (share sales) can be structured to broaden ownership and increase public involvement in disinvestment.

C) Providing employees with shares through Employee Stock Option Plans (ESOPs) when companies move to private management helps reduce opposition to sales and enables them to share in the growth after privatization.

4) Optimizing Government Spending –Reducing business costs, such as cutting rail freight subsidies, covering more discom losses to lower electricity prices for producers, and bringing petrol and diesel under GST at 28% would better optimize government spending.

5)  Boost to Tourism-India must develop a five-year plan focusing on women’s safety, cleanliness, and transforming “Incredible India” into a “Credible, Safe India” to attract more tourists and boost employment, leveraging diverse attractions like heritage sites, religious destinations, etc.

6) Strategic Focus on Industrial Growth and Human Development- India should pursue an industrial policy aimed at enhancing exports and employment, while also prioritizing improvements in education and health.

Question for practice

What are the problems affecting the Indian economy? What steps should be taken to move forward?