Budget 2020 could have changed narratives by capturing geopolitical opportunities. It could have gone further and forward pushing for reforms. Instead, it paused. Lacking vision and bold initiatives, Mrs. Sitharaman disappointed an aspirational India.
In final sequence of “Quantum of Solace” (2008) Daniel Craig (“007”) escapes an exploding façade, giving finger to another way to die, all in a day’s work. Despite the most number of violent acts in a Bond movie, and despite a rather outstanding performance by Mr. Craig, it is only the seventh highest grossing Bond movie, as adjusted for inflation. Quantum of Solace left us unsatisfied, and asking for more.
Yeh dil maange more [My heart asks for more]. Just as I felt about the 2020 Budget whose bold idea is a USD 1.1 B allocation to “Quantum Technologies and Applications” over 5 years.
There were a few major expectations ahead of the budget.
For the first time India has a Government, unencumbered by concerns of a coalition, whose mantra is wealth creation. A core belief that people themselves, through grit, hard work, and some luck, create their own destiny. That entrepreneurship draws multitudes away from below poverty level. That markets – with some supervision – are the most effective way to allocate resources and capital. After decades of socialistic diktats, no wonder people tended to believe the promise of “acchche din” brought to you by right thoughts. Naturally, I was expecting more shock and awe.
Banking sector reform is a priority item. NPA at unsustainable levels (12%+ by most estimates, including stressed loans) leaves Indian taxpayers on the hook with 70%+ ownership in public sector banks; they are estimated to be over USD 40 Billion under-capitalized. On these pages I have repeatedly advocated for adequate “Good Bank / Bad Bank” framework that, in effect, does the job of a Quantitative Easing, in addition to imposing market control. Retail Banks need be privatized and be made run for profit, while Postal Bank can step in to insure continued access in remote areas.
For infrastructure we need to break the shackle of dependency on Government coffers. A well designed PPP framework can force-multiply any GoI allocation. A good example is a deposit insurance program – a minimal deposit insurance fee keeps aloft trillions of retail deposits with barely a ripple in the market. GoI should create a legal and supervisory template that will allow private funds, domestic and foreign, invest under market governance, deposit insurance money steps in as a last resort. The same could be applied to a moribund Real Estate sector. In the US, Freddie Mac and its ilk – all private corporations – keep liquid trillions of dollars invested in the housing sector, insuring millions of jobs and prosperity for all. All we need is a commitment to develop the legal and procedural template before markets take it over.
US-China Trade War, and late blooming health scare, make investors queasy about investing afresh in China. That would have been an easy ticket to a USD 5 Trillion economy. Global operators are already comfortable about IP protection regime in India, and increasingly more uncomfortable in China; and they are very aware of technological agility of Indian workers. US manufacturers are actively looking for bases outside of China to locate manufacturing hubs. What we need are labor reforms and land reforms to lay out a welcome mat – and I was hoping this Budget would make it a priority item.
Finally, there is a growing fear in Boardrooms across the globe that India has taken its eye off the prize. Uncomfortable comparisons to aspects of China are being alluded to in the open, and as these things go, ‘wait and watch’ doctrines are ruling the bottom line. India can ill-afford any of that, especially it has a deadline to hit USD 5 trillion mark. Wise minds have opined that every crisis presents an opportunity, and the opportunity this time was to drive the ball off the field, attempt a moonshot – or two. A clear six as some would say.
Yes, Mrs. Sitharaman had a long list of to-dos. What got the headline was that she attempted little. There was minimal rejig of personal tax regime, it will barely make any difference in consumption. IPO of Life Insurance Corporation (~350 million policies) is attempted not as a well-deserved retreat from the sector, but as a source of liquidity for the exchequer. A whole number of initiatives are envisaged; that reminded me more of meaningless budget exercises in decades past, e.g., allocations for “National Mission on Quantum Technology and Applications”, and five “Indian Institutes of Heritage and Conservation” – best left to private capital and charity respectively.
This could have been a golden opportunity to win back the narrative, use market forces unleash promise for all. This would have given global manufacturers a venue with closer relations with the Free World, better IP protection, and a workforce at least as capable as any in the world. This could have curtailed superfluous government interdictions in ordinary commercial life, while multiplying impact of where taxpayer monies are deployed, thereby freeing resources for better governance on the ground.
All of that have to wait. Aspirational India stands disenchanted by the Budget.
[Partha Chakraborty, Ph.D., CFA is an entrepreneur in Water technologies, Blockchain and Wealth Management in US and India. All opinions are of the Author alone, and do not necessarily represent that of any organization he may be part of. The author alone is responsible for any error or omission].