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Fixing The Foundation

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In both the budgets announced by the NDA government under Prime Minister Narendra Modi, the key theme appears to be of fixing the foundations of the economy. Previous governments have taken the high and grand road by announcing big plans but never delivering on the implementation.

Finance Minister Arun Jaitley and Railway Minister Suresh Prabhu have worked like professional experts who have been tasked to repair a leaky house with weak foundations and crumbling walls.

Let's begin with the larger issues that Jaitley has attempted to target. He plans to create a social safety net that will allow pension support to every citizen in the country. This is not an easy task but nor is it a new idea. This has been discussed for years, but was not put on the table. While the middle class may feel hurt by the increase in service tax, this long term benefit will help them far more than a minor reduction in their tax burden. He is also encouraging a culture where long term benefits are valued more than short term gains.

Even for corporates, Jaitley has focussed on efficiency and transparency. A bunch of exemptions have created a confusing web that forces high administrative cost on companies. He has planned to remove these while replacing this with a lower corporate tax.

Other fundamental changes he has tackled were also being discussed for a while. The merger of market regulator SEBI with Forwards Market Commission will bring further efficiency. There is effort to deepen the bond markets which are essential to raise resources.

Critically, the finance minister has recognised the problems that have been created by jobless growth. Large companies grew by reducing cost and therefore not creating jobs. Jaitley has turned his focus on small companies. He wants to support startups and small companies who can be employers and create millions of new jobs. While the Self Employement and Talent Utilisation fund for Rs 1000 crore is a great step. It will have to work to help create an ecosystem that makes it easy for young entrepreneurs to start and run businesses.

Railway Minister Suresh Prabhu took the same approach. His focus on implementing long pending projects is critical. Raising funds for these projects will be a challenge but the low oil prices will give him some cushion. The key effort on railways is to corporatise it and make its officer more accountable. The outcome oriented approach is far more important than the needless focus on high speed bullet trains.

Modi has elbow room to remain unpopular since the next state elections are at least 8 months away. Until elections put pressure to be populist, Modi is rushing to repair a broken house.

Twitter: @pranjalsharma
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