'This Budget has provided vision and resources'

Dr Subir Gokarn, Director of Research at the Brookings Institution India Centre and former deputy governor, Reserve Bank of India, shares his thoughts on the Budget in an exclusive interview with Chaitanya Netkalappa of Deccan Herald. Excerpts:

It is clear that this is not a 1991-style big bang budget. Were you expecting it?

Yes, this is more or less what I was expecting. Circumstances are very different now compared to 1991. Of course, there was trouble earlier but that pressure was off because the macroeconomic situation improved drastically. It is a more aggregative budget, putting things together and has come in entirely consistent with my expectations.

What has been announced that you were expecting?

One thing I had been advocating for is a National Infrastructure Fund. It is a way to reconcile the need for fiscal discipline with the need to commit more resources to infrastructure. This seems to have been announced. We will have to see how it fleshes out of course but the broad push is there.

Second, direct tax reform – a very critical move. I have long felt that it is the most rational way to tax people. Many exemptions are obsolete. Plus, not that I think it will be necessary, there is always the discretion to bring some back. Therefore, I am positive on the budget. I do wish it could have been done with more promptness. It will be a four-year process, but it is under way. Ultimately, the Budget is a big picture document. It is supposed to provide vision and support it with resources, and I think it has done that.


There has been a let up on fiscal discipline with the budget deficit coming in at 3.9 per cent instead of 3.6 per cent and only going to reach 3 per cent in three years rather than two as previously envisaged.

It could have been avoided but the FM has very specifically said that it adds to the overall pool of infrastructure and therefore, I am quite sanguine about it.

What effect, if any, will this measure have on monetary policy?

Only taken literally, it could be interpreted as a negative statement but the assurance is to be spent on infrastructure which offset that. The other concern is revenue deficit – 2.8 per cent - which is on the higher side.

India seems set to grow regardless of the budget simply due to a uniquely benign environment. Would you say that the FM missed an opportunity to present a budget that was fundamentally transformational at this juncture?

I am wary of words like big bang and transformational. Ultimately, the budget has to be rooted in nature in government, the overall environment, the way systems work etc. We know from bitter experience that it is easy to announce big bang but be disappointed in delivery.

There is a merit in being realistic as there is greater prospect of better delivery. The degree of control is higher than otherwise. So, that to me is not a major source of concern. What I see as strong point are the missions that were announced nine months ago had aspiration, not strategies. We needed to back missions with budgetary proposals. Now these two are coming together.

Indirect taxes have gone up, direct and corporate taxes are down – is this a sign of a government just being pragmatic, and what do you think the positive or negative effects of this change will be on the economy?

Pragmatism could be a reason. It is one aspect of concern. With GST, you need rates to be harmonised or system doesn’t work. Despite endorsement of GST, these rates go away from harmonisation. I hope that it is corrected.

What net impact will this Budget have on the financial sector which many feel is over-regulated and under-capitalised?

The idea is not less regulated or more regulated but more efficient regulation. I think the broad thrust is to accept the recommendations of the Financial Sector Legislative Reforms Commission and bring in the Indian Financial Code and the required legislative recommendations.

This is a fairly broad based push to bring into legislation the recommendations of the Commission but they are only proposals. Bills will have to be introduced. And eventually, the hope is that it will translate into growth. It is a pretty wide-ranging set of financial sector reforms and the underlying principle is regulatory efficiency and defined roles. It is by no means a consensus position and there are many different positions on this but the government seems to have taken a stand and is moving forward.

There was not much in the speech about PSU disinvestment. Was this the biggest missed opportunity?

Again, when you ask about missed opportunities, I reiterate my initial point of realism. Making wild claims and not living political realities is not feasible. The total target is Rs 69,000 crore. There is no reason for government to hold on to shares that were essentially a result of the restructuring of UTI.

As for strategic sale – I don’t know what really strategic sales are. Is it large sales of stock? Or selling to the extent that new owners have control? I couldn’t make out from the speech. But Rs 69,000 crore is a substantial amount of money and I hope it reflects disinvestment. Of course, it is unrealistic to say that all the money will be used for infrastructure as fiscal pressures prevent that – some of it will go to the general coffers.