Pragmatic approach to fiscal consolidation

Abstract

The Union Budget deftly crafted in about six weeks by a strategic thinker and seasoned parliamentarian has followed a very pragmatic approach of Maximum Cooperation and Minimum Resistance. And that probably is a correct strategy in a difficult economic situation, both internationally and domestically. In recent months because of the mounting CAD, restrictions on gold imports were severe and the expectations from the new government were in terms of easing of import duties and facilitating revival of gold market. However, gold had virtually no mention in the much awaited budget of July 2014. The Finance Minister could have used this opportunity to explain the policy stance of the government on gold. Further, there is one silent segment of the population, the elderly, which gets neglected in most of the policies of the government. There are more than 11 crore elderly in India, above the age of 60 years, generally female, who are in urgent need of care as nearly ninety per cent of them, associated with the unorganized sector, are not on any sustainable social security program. While some 3 crore elderly who are under the BPL category get about Rs 500 as old age pension, the remaining 8 crore elderly have to fend for themselves. In view of the weak and inadequate public health care system, the elderly have limited access to medical services as many research studies have discovered. In contrast to many countries in Europe, where age related expenditure on health and care is 8-10 per cent of GDP, it is less than 1 per cent in India. Some simple initiatives to help elderly could include respectable amount of universal pension and universal insurance to help them live their sunset years with dignity. The universal pension could increase with age and especially for female survivors. Finally, there is a need to address two things in connection with changing demographics in India. First, there is a need to have a think tank dedicated to ageing to study the problems of elderly and age related financial economics. Second, there is a need to develop science of medical gerontology, an area which is neglected in India. The Union Budget of the new government may seem to be a continuity of the previous government but has much to offer when analytically examined. If implemented, it will usher in a change in the very fabric of Indian policy making and business thinking in a very short time because it proposes widespread changes in different segments of the economy. The Finance Minister has correctly adopted an approach to demystify the Union Budget, much in keeping with the international practice followed by other countries where the budget day is a non-event and fiscal policy making is a regular feature, not identified with statement of government accounts. The announcement that monetary policy measures and other welfare oriented issues like malnutrition would be addressed separately as well as gradual rationalizing of the government expenditure like subsidies through a Commission indicates a focused approach towards fiscal issues, given the limited time-frame within which the budget was prepared. The resistance for additional borrowings and incurring higher debt obligation, despite the available fiscal space, demonstrates the commitment to fiscal consolidation. A sober and mature approach has been used in formulating the budgetary policy despite a mandate which would have helped rationalize if not justify fiscal profligacy. The budget, in that sense, is truly laudable and path breaking and sets a way for more reforms through consensus building.