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BW Businessworld

Can’t Buy This Budget

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In the Interim Budget, Finance Minister P Chidambaram has tried to lift the mood of the consuming class by reducing the prices of aspirational products. He has reduced the taxes on cars, mobiles and other such products that would make a happy consumer vote for his party. 
 
But this must be a cruel joke to the half a million or so young Indians who joined the ranks of unemployed in the last two years. Many millions are underemployed and working just to earn a living. Their talent and skill wasted since jobs that justify their education are shrinking. 
 
Mr Chidambaram and the ruling United Progressive Alliance (UPA) coalition are offering sops to a shrinking consuming class whose purchasing power has diminished. Under the watch of the UPA, middle class was terrified into spending less. The poor got a few sops through a leaking system and the rich saw sharp erosion in their ability to create wealth and value.
 
According to government-run National Sample Survey Organisation, joblessness among the young has grown in the last few years. The figures for 2013 and 2014 threaten to be worse. 
 
This rise in unemployment affects the wealthy, the middle class and the poor equally. Job creation is arguable the single most important indicator of growth for a populous market economy. 
 
In the interim budget of 2014 and the many budget announcements in previous years, Mr Chidambaram has been unable to offer any strategy of creating employment. 
 
How does he expect the consuming class to be happy with a small discount on a few products, when they are not sure whether their salaries and incomes will rise or fall? 
 
Most are saving and not spending. Reduction of excise duty will not create a burst of spending by these classes. The deep fall in sales of the automobile sector was not a result of high duties. It was a result of consumers being unable to afford cars. Their incomes were stagnant, but car prices rose. They could have borrowed, but the interest rates were prohibitive. 
 
Consequently, cautious Indian consumers, preferred to defer their purchases. Even at a macro level, this has been a sensible development for the economy. If millions of consumers had bought automobiles and real estate at unaffordable rates, India would have seen a credit bubble burst. 
 
Mr Chidambaram was ideally placed to drive growth in the economy as he has in charge of the finance ministry for most of the time in the two terms of UPA government. In the first term, he blamed the communist allies who were part of the coalition. In the second term, UPA found an easy scapegoat in the global crisis. But the real issue for the economy was the slow pace of decision making and terrible record of implementation. India’s economic problems were created by internal issues not external. 
The Aam Aadmi Party (AAP) on the other hand is promising to tackle governance issues. On a day when a dismal interim budget was presented, AAP’s chief Mr Arvind Kejriwal ranked governance higher than economic reforms. He welcomed private sector but criticized crony capitalism. 
 
Most industry leaders would agree that good governance ensures better economic activity. Offering price discounts to the unemployed can’t be a growth policy.
 
There is nothing to buy in this interim budget. 
 
 
Pranjal Sharma is a senior business writer. He can be contacted at pranjalx@gmail.com. You can also tweet @pranjalsharma)