Reviving the Indian Economy: PM Modi’s Challenge By Dr. Bobby Srinivasan and Dr. Sudhakar Balachandran


We are only 10 days away from the budget. The last 10 years of UPA government had committed so much to welfare and subsidies that it will take a great leader like Modi to stand up and say we cannot afford this luxury anymore. Let us look at some facts.

  1. Start with food subsidy provided

FY 2012 – 2013                     85000 crores

FY 2013 – 2014(RE)              92000 crores

FY 2015 (Interim Budget)     115000 crores

Can Mr. Modi bring down the subsidy? Possibly not; People receiving are used to who are currently beneficiary will protest.

  1. Let us now look at under recovery (Government pays on behalf of consumer).

Kerosene Rs. 32.87 per litre

Gas Rs. 432 per cylinder

Fertilizer subsidy Rs. 67970 crore

All the subsidies added up to 10% of the total budget including the NREGA. Mr. Modi will have to reduce the under recovery to reduce the budget deficit. Will he bite the bullet and do it? Let us see.

  1. Let us look at the budget borrowing

It is approximately 30% of the budget. If our household is run like the government, we would have become bankrupt long ago. Reducing the borrowing it will be a herculean task. In the short-run Mr. Modi possibly cannot.

  1. Let us look at the taxes

Marginal relief for tax payers is currently around Rs. 2 lakhs. Mr. Modi has no money to increase it even though some are asking for the limit to increase to 5 lakhs. Let them continue to dream.

  1. Regarding Corporate taxes

Exemptions amounts to 68000 crores which is the amount foregone in FY 2012 – 2013. Can this be sustained? Remains to be seen.

Observation:

  1. Mr. Modi’s hands are tied. He has to find additional source of money. He can try to sell more of the PSUs. Otherwise the deficit will increase even further. Currently it is around Rs. 5 trillion out of a budget of 16.5 trillion Rs.
  2. Both the failing monsoon and the spiraling oil prices are going to affect his budget. Being a strong leader, he should not play to the gallery but must act in a determined way to get the economy back on track. He should tell the people “no free lunch”. It was almost like the parents telling a child who is asking for an extra allowance. PM Modi must be transparent regarding the true finance of the country and advise them to lower their expectation.
  3. Mr. Modi should not get swayed by popular opinion but instead take the harsh measures necessary to put the economy back on track. However in the last 1 month he has already back tracked on the railway budget and the sugar support price.
  4. Continuing to be people friendly by offering freebies will not be the hallmark of a good leader. Tough measures are needed even if it makes the growth to come down temporarily.
  5. Inflation is our worst economy. He should address this problem immediately. Study the supply chain carefully. Threatening the commodity market will not yield the result.

The entire population of India is watching him to hand over goodies to them. If he did then he may win a few more supporters but the country will become much poorer for that. Sir, you mean good. Put a lid on the budget, people will understand. If you don’t do it, nobody in future can do it because you have a comfortable majority which is rare in the Indian politics.

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