Economy

One-in-a-100-year budget, a 1991-moment, and such ambitions

Updated : January 10, 2021 07:45 PM IST

The 1991 moment doesn’t refer to a budget, but a whole complex of steps.

The biggest reform the NDA needs to unleash is in cutting the bureaucratic red-tape and improving execution.

The finance minister’s desire to present a one-in-a-100-years budget is leading to expectations that a repeat of the “1991 moment” is on the cards. This piece argues why the 1991 moment is not easy to replicate. If one understands the constraints, it may be easier to create a one-in-a-100-years effort in the right sector, and with the right steps.

Firstly, the 1991 moment doesn’t refer to a budget, but a whole complex of steps, even if the 1991 budget set the agenda and started the process. More importantly, that budget and the steps that followed correctly concentrated on what fell within the ambit of the central government. For instance, it proposed the abolition of industrial licencing for most products. That was subsequently delivered by the commerce ministry through a non-descript press release.

The 1991 budget announced the formation of the Raja Chellaiah Committee to bring down imports tariffs. Dr Chellaiah subsequently gave a road map that brought down tariffs from 200 percent (yes, you heard it right) to 30 percent over five years. The 1991 budget announced that over time the government would phase out the ad-hoc treasury bills, an instrument that allowed the central government to borrow, literally without limits, from the banks and from RBI. This was delivered over the next ten years, but it has since reined in the central government to market discipline in its financial transactions.

The key point to note is that all these steps were firmly within the purview of the central government, and hence the government was able to come good on its promises.

Secondly, these were also huge legislative reforms that could be changed purely by parliament, like for instance, abolishing licencing.

The same is true of the accompanying liberalisation by the RBI. In subsequent years, after 1991, RBI allowed banks to set their own loan and deposit rates, as against RBI set rates until then. The central bank also, in weeks, changed the exchange rate from an RBI set rate to one determined by the interbank market. Thereafter, of course, foreign institutional investors were allowed to invest in Indian shares and then bonds.

Again, all these are primarily central government areas.

The NDA faces an unenviable task in that the reforms thenceforth are required in areas where states need to co-operate: for instance land reforms including land acquisition, labour reforms, power sector reforms, agricultural reforms. Most of these require a buy-in from several constituencies, especially state governments and the target audience as the NDA painfully realised with the farm laws. Likewise, the PM Kisan Yojanas also require the state government to deliver on updated land records. The reforms, hence tend to long-drawn and incremental and not Big Bang and immediate in their impact.

The biggest reform the NDA needs to unleash is in cutting the bureaucratic red-tape and improving execution. A legal eagle of a finance minister like Chidambaram could not control his tax departments. It isn’t surprising that a constant complaint of ordinary citizens and corporates even today is the tax terrorism unleashed by the bureaucracy to reach its targets.

Improving the execution of government program is an even bigger challenge. Whether it is Ayushman Bharat or Atal Bima Yojana or swachchata or the myriad agri-infrastructure proposals -- the devil lies in the execution. Again these are incremental and don’t immediately improve growth or productivity.

The one area where the central government can create a one-in-a-50-years impact (if not 100 years) is in the area of public sector banks. Banks were nationalised in 1969, and fifty years on, its staunchest adherents are crying out that nationalisation needs to be rolled back. A clutch of steps to move PSU banks to a holding company, privatise at least one or some of them, abolishing the banking companies Act and moving PSU banks to the Companies Act, restarting the Insolvency & Bankruptcy process and thinking through institutions like a bad bank and an infrastructure financing scheme can all still add up to a huge Big Bang reform.

The economists who met PM Modi appear to have alluded to some of these. Let us see how much is promised in the budget and when it is delivered.

One-in-a-100-year budget, a 1991-moment, and such ambitions

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