View: 2019 could be Sitharaman's opportunity to make history
The time has come for getting to grips with the reality of a slowdown, and finding new avenues of growth.
The season of pre-Budget gyan is upon us. I have a very simple word of caution for finance minister Nirmala Sitharaman. A reputation lost in the first Budget is difficult to retrieve in subsequent ones. Put your best foot forward. Elections are over. They will come again and govt will have to spend again. But, for now, the focus has to be on fiscal discipline. An FM’s dharma demands commitment to fiscal responsibility.
Fortunately, for Sitharaman, the three other crucial areas awaiting policy attention are subjects she has directly dealt with in her first term in government — industry, commerce and defence. Turning the investment cycle around has to be the first priority of not just this July’s Budget, but of the next two, so that midway through second term, Prime Minister Narendra Modi can claim that his government has taken the economy back on to the medium-term growth path of 7.5% average annual rate of growth of national income. If the economy can return to 8% growth by 2021, that would, of course, be a bonus.
Policies that calm investors’ nerves and give them incentives to work for, and the hope to attain a rate of investment logged in the early 2000s — 35%-plus — should be Sitharaman’s first priority. Indian business — big, medium and small — has been deeply unhappy and nervous over the past couple of years. GoI owes it to the voter, the job-seeking youth, and to investors to restore faith in the growth potential of the domestic economy. It is no use chanting the mantra of being the world’s ‘fastest growing economy’ if businesses can’t feel that growth.
Last February, interim finance minister Piyush Goyal read out a pre-election Budget speech that was understandably self-congratulatory. The time has come for getting to grips with the reality of a slowdown, and finding new avenues of growth. Good policies can do more for growth than public spending.
The priority for Sitharaman is to make ‘Make in India’ happen. Once Indians feel happy making in India, foreigners will troop in too. There is no sector more ready for a major boost than defence, and Sitharaman knows what exactly she should do to get more private, domestic and foreign, investment into defence manufacturing. As raksha mantri, she devoted considerable time to developing the policy framework. But most of her ideas await implementation. Defence manufacturing can be a new avenue of growth for Indian business — big, medium and small.
She should devote time in her Budget speech to unveil her ‘Make in India’ strategy for defence. Most FMs have shied away from a detailed statement on defence finances and manufacturing. It is surely odd that finance ministers have traditionally devoted more time to speak on expenditure in areas that are the purview of state governments, and Parliament would devote half a day to the Railway Budget and yet, defence, a central responsibility of GoI and a key component of its expenditure, has rarely secured more than a minute in most Budget speeches over the past 70 years.
Indian business is ready to invest more in defence manufacturing. Sitharaman has already taken many steps to facilitate import-substituting industrialisation in defence. A proposal she has worked on to leverage the offset policy and induce original equipment manufacturers (OEMs) in defence to support ‘Make in India’ should be unveiled forthwith.
A venture capital fund can be created, with the approval of the stock market regulator, which would invest risk capital in defence startups and small and medium enterprises (SMEs). These SMEs can then enter the global value chain of global OEMs, enhance indigenous defence manufacturing and product development capacity and capability.
Finally, Sitharaman’s third forte — commerce. India has come under pressure from friend and foe on the external trade front. In the past couple of years, the FM raised tariffs, mainly to deal with rising trade and revenue deficits. Sitharaman will now have to address not just US President Donald Trump’s demands but, more importantly, expectations in Asia about India’s commitment to regional economic integration.
This does not mean India should surrender its national interest, or that India should do more for others than what they are willing to do for India. But it is necessary to signal a renewed commitment to building a more globally competitive economy at home.
This is Sitharaman’s opportunity to enter the history books. Manmohan Singh (1991 reforms), P Chidambaram (1997 ‘dream’ tax cuts) and Arun Jaitley (2018 GST) entered it with bold ideas. July 2019 should be Sitharaman’s Victor Hugo moment — time for ideas whose time had long come.
(The writer is distinguished fellow, Institute for Defence Studies and Analyses, New Delhi)