The Modi government has promised to revive India’s sluggish economy. Investors and rating agencies around the world are scanning through the budget proposals to spot trends in India’s evolving business environment. Rajrishi Singhal, senior geo-economics fellow at Gateway House, comments on India’s new budget, as announced on 10 July 2014.
Statement:
“Arun Jaitley’s maiden budget has some hits and some misses. As a document spelling out the government’s economic policy, Budget 2014 should be viewed more as a vision document – one that tries to elucidate a road map for the next five years but leaves out specific measures on how to accomplish them.
Budget 2014 has focused on capacity creation, emphasising on infrastructure build-out, improving the supply chain, attempting balanced regional growth, striving to improve the country’s industrial eco-system and an undertaking to provide a stable tax regime. As a corollary, Budget 2014 also has prescriptions for improving capital flows, enhancing the domestic savings pool and reforming the labour market by not only making some legislative changes but also upgrading the skills availability.
The government’s lack of clarity in its foreign direct investment (FDI) policy is disappointing. It seems to be a continuation of the previous government’s approach and, as such, is unlikely to inspire investor interest in the overseas markets. This is doubly disheartening because FDI is required across a wide swathe of industries, instead of the avowed “selective” approach adopted by the government. In the two examples of increased FDI limits (from 26% to 49%) announced in Budget 2014 – defence and insurance – the caveat of “full Indian management” and “through the FIPB route” are clear dampeners for investor sentiment.
The absence of a clear policy stand on how the government proposes to go about achieving the country’s energy security is also disappointing.”
For more information or interview requests, please contact Reetika Joshi at joshi.reetika@gatewayhouse.in.