This year's Indian Budget, unveiled by the government of Prime Minister Narendra Modi, had been anticipated for radicalism reminiscent of the reforms of 1991. Those had liberalised the economy to the disbelief of India's detractors and even its friends. While expectations of a Big Bang have not quite materialised this time, there is little doubt that the new Indian economy which Mr Modi has promised his citizens has taken a step closer to reality in the business-friendly Budget presented by Finance Minister Arun Jaitley.
Thus, the proposed reduction of the corporate tax rate from 30 per cent to 25 per cent in the next four years is indicative of the government's determination to attract investment and create more jobs through an internationally competitive tax regime. The move should also improve compliance with tax laws, raise profit margins, and enhance business re-investment. The implementation of a uniform goods and services tax across India would enable it to function more as a unified economy and less as an arcane fiscal map of federal and state levies. The test here would be in the implementation of a necessary but ambitious reform.
The streamlining of subsidies, including those for fertilisers, is a necessity of economic rationalisation. Although this is politically sensitive because it involves the fate of millions in a substantially agricultural economy, the Modi government would need to move more aggressively on this front to transform India into the economic power that it ought to be.
No less important, although fraught with some electoral danger, would be the sale of loss-making state assets, given the centrality of the state-directed economy in the political compact that has guided Indian social thinking since its independence. The challenge would be to prove to citizens that, while privatisation destroys the security of untenable state-mandated jobs, it creates new horizons of growth for those willing and able to retrain themselves to benefit from the economic opportunities that will open up.
The immediate fortunes of the Budget initiatives are tied to India's strong growth rate, lower inflation and high foreign exchange reserves. As anywhere else, these advantages are not immune to a host of domestic and international factors. Low oil prices are a case in point. However, the Modi government has signalled its determination to push India along the growth curve to take its place among the Asian high-achievers. China has set benchmarks in this effort since it cast aside socialist dogma in the 1980s. India's reforms began later, but it does not have to lag behind, given its wealth of natural and human resources, and the savviness of its entrepreneurs.