INSUBCONTINENT EXCLUSIVE:
Traditionally, India's finance minister carries the annual budget to Parliament in an old-fashioned briefcase; photographs of him holding
the briefcase up are usually splashed across the front pages the next day
Finance Minister Nirmala Sitharaman, the first woman to hold the post, broke tradition last Friday by carrying her budget in a folded red
cloth cover, of the sort used by some trading communities in India to store their accounts.Having provoked the flurry of media attention the
gesture was intended to generate, Ms Sitharaman's deputy was happy to explain: The new finance minister meant to break with a tradition
inherited from the British
It was, he said, "a step in the direction" of becoming a "superpower."That statement left me wondering if the official in question knows
The budget made me wonder the same about the government.Consider, for example, the treatment of the country's armed forces
Ms Sitharaman barely mentioned defense spending (indeed, for much of the first half of her speech, she barely mentioned any numbers at all)
Perhaps that was because the defense outlay has barely kept up with inflation for years, and under Prime Minister Narendra Modi has reached
record lows as a percentage of gross domestic product
Not since China humiliated India in a traumatic border war in 1962 has any government allowed defense spending to fall so low
Last year, it came in at less than 1.6 per cent of GDP.Perhaps you think that, instead of defense, India is investing in its own people, as
a 21st-century superpower should do? Well, only 3.4 per cent of total federal spending was budgeted for education -- down from 3.74 per cent
the previous year and from 4.3 per cent when PM Modi took over in 2014
And the federal government and state governments together spend less than 1 per cent of GDP on health, a fact which this budget did little
to change.Capital expenditure, too, has been squeezed -- by one estimate, from Rs
9.2 lakh crore ($134 billion) last year to Rs
What has grown in the budget is subsidies: The government and public-sector corporations are borrowing in order to fund a direct transfer of
cash to the country's farmers.It's true that the country's farmers need help
But what they really need is agricultural reform that would allow them to access national and world markets instead of depending on
There was no sign that such changes are on the agenda, even though the country's procurement program is controversial at the World Trade
Organization and one of the major stumbling blocks towards moving forward on multilateral trade negotiations.India at the moment faces both
a cyclical and a structural slowdown
The former is because credit and investment have frozen up, with new project launches at a 14-year low last year
The latter owes more to the fact that manufacturing and exports are both facing a crisis thanks to sustained weakness in skills and
competitiveness.Ms Sitharaman's budget offered hope of addressing the first problem
India's troubled non-banking financial companies -- its shadow banking sector -- will be thrown a lifeline
Public-sector banks will be recapitalized and small businesses will be able to borrow at cheaper rates and get their money quicker
Start-ups have for years been complaining about harassment by tax officials; in her speech, Ms Sitharaman promised crucial changes to the
rules to reduce this persecution.The government has also announced that it will start issuing dollar-denominated bonds, something previous
governments have been terrified of doing
That should hopefully mean it will appropriate a smaller proportion of domestic Indian savings, allowing some of those to be used for
private-sector investment instead of government spending
That's cheered the bond markets and might create some space for the Reserve Bank of India to continue to cut rates, perhaps more sharply
I'm a little more optimistic about the short- to medium-term now.But, if anything, I am more pessimistic about the long-term
The failure of the government's skilling program was glossed over in the budget and, instead of looking to integrate into global supply
chains in order to grow exports, the finance minister continued with the Modi government's practice of arbitrarily raising tariffs to
protect domestic industry
Who would want to set up an export-focused factory in the country when tariffs are changed constantly and arbitrarily?Investors can take
solace in the fact that India will almost certainly recover from its cyclical slowdown
But I still don't see it taking any steps in the direction of being a superpower -- or even a comfortable, upper-middle income
country.(Mihir Sharma is a Bloomberg Opinion columnist
He was a columnist for the Indian Express and the TheIndianSubcontinent, and he is the author of "Restart: The Last Chance for the Indian
Economy.")Disclaimer: The opinions expressed within this article are the personal opinions of the author
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