The coming budget would be important for the economy in many ways. At the fundamental level it would decide the future direction that India would pursue. The choice is whether India seeks opportunity driven development; or will the development be subordinated to political concerns.
At the fundamental level the budget is expected to target two themes–Governing Competence (GovCom) and Infrastructure-led Growth (InfraGro). Within the theme of governing competence, the vision is to implement: process-driven and non-discretionary allocations and approvals; have a transparent policy making framework; and increase administrative productivity using IT. And all this in limited cost.
Within the infrastructure-led growth theme, the idea dwells largely on reforming railways, manufacturing, energy security, water security, enhancing foreign trade and smart urbanisation.
Thus, for instance, the prime ministerial impetus to projects like the Mumbai-Delhi Industrial Corridor alone addresses four of the six elements highlighted in the InfraGro theme. This project seeks to create world-class railway infrastructure, create and integrate manufacturing clusters, improves port connectivity to suppliers; and gives rise to around 100 smart cities in its periphery. Likewise there are many such work areas that can meet multi-factorial objectives by a singular focus. But most of these projects in one form or the other require a massive scale of investment.
However, with a huge proportion of budget expenditure allocated into salaries, pension, subsidies, defence and debt servicing, the government has little resources left to invest in these projects. Yet still, such investments and expenditures which the government incurs by its own revenue and by borrowing from the market (fiscal deficit at 4.1% of GDP) has caused two structural imbalances. The high expenditure, subsidies and pilferage without similar creation of productive assets imply that there has been high money velocity in the system. That is, more money is chasing lesser and lesser goods and services. This is the primary cause of inflation.
Thus, while farm labour wages and farm acquisition costs have risen due to government schemes, farm productivity has not caught up in an equal measure. This has pushed up food prices in particular. On the other side, the high budgetary borrowing and declining savings in the economy have pushed up the interest rates. Thus, we face a double whammy of high structural inflation and hence high interest rates and high fiscal deficit. The budget would have to look at reducing the fiscal expenditure for states and the Union, and try to bring down inflation and