While giving a boost to cooperative federalism, the budget fails to lay out structural reforms to boost income generation opportunities

February 01, 2020, Jaipur

“While giving a boost to cooperative federalism, the budget fails to lay out structural reforms to boost income generation opportunities”, Pradeep S Mehta, Secretary General, CUTS International

The Finance Minister introduced the Union Budget 2020-21 earlier today. The budget was divided in three broad themes: Aspirational India, Economic Development, and Caring Society. While delving into these themes, the Finance Minister laid emphasis on centre-state cooperation and urged states to adopt and implement model legislations prepared by the centre on agriculture and other critical issues.

“It is heartening to note the centre recognises the need for all tiers of governments to work together. It is now time to walk the talk. The centre must introduce credible steps to partner with state and local governments, despite differences in ideologies or parties leading the governments,” noted Pradeep S Mehta, Secretary General, CUTS International.

He also noted that the target of making India a USD 5 trillion economy in next few years was missing from the budget, so were the structural reforms required at the central and state level to boost development.

“We were expecting the government to lay out a medium-term strategy of structural reforms to boost income generation opportunities. These could have comprised public expenditure reforms within the government, and removing supply side distortions for industries to make inputs available to them at globally competitive rates. While some short-term steps were introduced, a comprehensive strategy was missing in the budget”, explained Mehta.     

The budget did talk about creating an investment clearance cell covering all approvals required by different departments at different levels. “Unfortunately, we have not had great experiences with single window clearance mechanisms in the past. Moreover, the government appears to be stuck with the idea of ease of providing approvals rather than moving forward on reforms relating to ease of running a business in India, noted Mehta. The move to ease compliance for micro, small and medium enterprises by raising the turnover threshold for audits was however appreciated.

While the budget recognises the role of start-ups, value of digital and quantum technology, and the need to set up data centre parks in the country, it misses an opportunity to assure a level playing field in this regard.

Mehta highlighted that India has hitherto witnessed uneven development of digital economy. Some entities have benefitted from implicit government support at the expense of other market players. There is a need to adopt a pro-market approach for fostering digital economy and other sectors. This can happen through adoption of a National Competition Policy to identify and remove anti-competition barriers across sectors.

The budget also recognised the need to boost exports from India, particularly in pharmaceutical sectors. However, a clear vision in this regard appears to be missing. At one end, we want to be part of the global markets, but on another we are backing away from arrangements like Regional Comprehensive Economic Partnership.

The government must understand that we need to participate in global and regional value chains if we want to benefit from international trade”, quipped Mehta. However, he appreciated the connectivity initiatives announced by the government and the plan to develop economic corridors. Time bound implementation will be the key in this regard.

The plan to disinvest stake in public sector enterprises is a welcome move. However, ensuring professional governance and management of such entities will be much more important.

For more information, please contact:
Vijay Singh: vs@cuts.org