The BJP government has assumed power after achieving a stable majority. One of the first tasks for the new government will be to present a budget. Along with the budget the Direct Tax Code will have to be got approved. The GST has been hanging fire for several years now. Perhaps the duty of getting this through Parliament will be fulfilled by the new government. While presenting the budget the government could consider the proposal of abolishing Income Tax and recouping the lost resources by enhancing indirect taxes.
The Kirit Parikh Committee had recommended increase in diesel price by Rs 5/L. The UPA II was reluctant to get this recommendation approved for fear of losing votes in the general elections. But with the Congress having been voted out the BJP can think of increasing diesel price by at least Rs3/L in one go. The government could further continue with the policy of increasing diesel prices by 50 paise every month and diesel price in the country will soon touch limits which will bring it on par with international market prices. This will be the opportune moment to decontrol diesel prices and link it with global prices.
The new government should bring down the number of ministries under it and also make efforts to downsize the bureaucracy. A major decision it could take could be to abolish the Planning Commission which would a major step in the process of downsizing. The Planning Commission’s resource allocation role could be played by a cell in the Economic Division of the Ministry of Finance. Today this apex body is more of a headache to the state governments and central ministries to which it allocates plan funds. The perspective planning role of the Planning Commission is being very well played by many of the research institutions and think-tanks operating over the length and breadth of the country.
There was a sort of policy paralysis under the UPA regime and many of the infrastructure projects failed to take off. Weather the new government will be able to get over bureaucratic and administrative hurdles and get the infrastructure projects going needs to be seen.
The food security bill has already been adopted by the Parliament. But it will be interesting to watch how the new government will go about implementing it. There is the possibility that the implementation of the food security bill will be tied up with direct cash transfers, food coupons and so on. Both direct cash transfers as well as food coupons will eliminate the need for maintaining huge food stocks by the government. Under direct cash transfer, cash will be distributed instead of food and under food coupons the public can buy food grains from the open market instead of from PDS. Even without a link with food security AADHAR based cash transfer will be a matter the new government will have to reckon with. This is a scheme which will lead to elimination of corruption and leakage under government schemes to a very large extent.
Many states in the country have been demanding special category status. The new government will have to deal with this demand in the light of the Raghuram Rajan Committee recommendations. States like Bihar, Odisa, UP, MP and Rajasthan are likely to demand special category status,
The anti-corruption legislations, Women’s Reservation Bill and Communal Violence Bill will be areas on which the new government will have to take action whether it wants to deal with them or not.
The former Finance Minister had been successful in containing the fiscal deficit during the previous year at reasonable levels. We will have to see what will be the fiscal deficit target for the current year and whether this will be achieved. The problem with the Current Account Deficit has almost been tackled for the previous year. It will be interesting to watch at what level the CAD will be contained in the current year. If, for instance, the restrictions imposed on gold imports are removed pressures on the CAD may reappear.
It will also be interesting to watch whether the growth rate achieved during the current fiscal will be closer to 4, 5 or 6 per cent per annum. How will the final figures of inflation turn out to be will also be a matter closely watched by the economists. Whether the election results will lead to an upturn or crash in stock market was a matter for speculation. How the markets will evolve during the tenure of the new government needs to be watched.