Why Narendra Modi’s big challenges for Budget 2014 are very basic

Prime Minister Narendra Modi can forget about MNREGA-style social schemes or any grand plans to clean river Ganga, his task was cut out the day the previous PM Manmohan Singh left 7 Race Course Road and the government coffers with a fiscal deficit of Rs 2,14,327 crore. The last government led by the once celebrated finance minister spent money like there was no tomorrow. In just the last two months in power, the Congress-led centre spent 40% of the year’s deficit target.

Not only does Modi have no money to fund any new initiatives, his government is even struggling to find money to sponsor the pet projects of the Gandhis like MNREGA and the Food Security Bill. Both were made into a law, making it compulsory for the new government to find money to keep it running. Rajasthan Chief Minister Vasundhara Raje has already asked why MNREGA cannot be turned into a scheme from the existing law.

Also read: Scrapped UPA schemes: Where have all that Rs 2.47 lakh crore gone?

The new Prime Minister has already announced that the coffers are empty. In such a situation, the immediate focus of the government has to be revenue collection. Modi says the country has to prepare for tough decisions. Price hikes for government subsidised services and products have already begun with an increase in railway fares and fuel cost. While the increasing of individual taxes can be ruled out, the government needs to revisit corporate taxation. People might argue that social schemes like MNREGA have led to mindless expenditure, but one cannot ignore the fact that huge subsidiaries are being offered to major industrial houses in lieu of ‘job creation’. Revisiting corporate taxation is as important as refocusing on government social welfare schemes.

Another important way to collect direct revenue is disinvestment. The BJP-led government is expected to resume disinvestment of government-owned companies. The last NDA government had been aggressive on this front, minimising government role in a number of sectors including hospitality and telecom. We might also see auctioning of more government-controlled resources including spectrum and minerals.

Asset creation – Highways, Railways and Housing

If sources in Delhi are to be believed, the big focus apart from revenue collection will be asset creation. Following the ‘Gujarat Model’, we are going to see big tangible infrastructure projects. The focus during the UPA era was on creating social infrastructure. Ofcourse the debate continues over whether any of the UPA’s programmes really helped or was it just pouring money into a black hole. The three big focus areas under asset creation are expected to be highways, railways and housing. In the last 40 days, we have seen glimpses of what is going on in Modi’s mind. Railway ticket prices were finally increased after 10 years. Delhi to Agra bullet train trials are already on. Modi has insisted on wi-fi facilities in trains, in spite of objections from railway ministry officials. Railway minister Sadananda Gowda has so far made it clear that he means business. Some major announcements on the modernisation of India’s decaying railway system is expected in the upcoming rail budget.

The last BJP government had laid stress on improving and building new highways. The golden quadrilateral was former PM Vajpayee’s brain child. Modi spoke about it throughout his campaign. Though the UPA government claims to have built more roads than NDA did, people expect the focus of the government to return to this important infrastructure initiative.

The third most important aspect is housing. The story goes that the idea of offering low-cost housing first came to Narendra Modi from the Gujarat Congress. During the last Gujarat election, one of the key features of the Congress campaign was ‘Ghar nu ghar’, a promise to give affordable urban housing to women. Modi is said to have really liked the idea. In the last week, we saw the Prime Minister meeting Singapore’s foreign minister and talking about his plan to build new cities. Apart from building new cities, the challenge is to create better housing facilities within the existing ones.


Towards the fag end of the UPA government rule, Congress Vice President Rahul Gandhi spoke about the ‘Right to Health’ as the next big right-based programme. BJP has a different approach to healthcare. Instead of the right-based approach which involves huge government spending, BJP believes universal healthcare can be achieved through setting up more hospitals and offering health insurances to citizens. In the Delhi state elections, BJP even managed to put health insurance in its manifesto. In a speech in January earlier this year, Modi also spoke about the importance of innovation in the healthcare industry. He stressed on the need for better usage of technology in this sector. We might see some interesting initiatives for healthcare by the government in this budget. Healthcare is after all, part of Modi’s dream of asset creation for the nation.

The Money – FDI

Taking it forward from the UPA government, Modi is expected to go full hog on Foreign Direct Investment (FDI), opening up many important sections including defence and infrastructure. The money for Modi’s asset creation is expected to come from two important sources – FDI (through Public Private Partnership or direct investment) and disinvestment. Singapore, which is already one of India’s biggest sources for FDI, has shown interest in Modi’s plan to create more new cities. Railways is another important infrastructure sector which is expected to see major foreign investment.

So to put it simply, the biggest challenge for Narendra Modi is to get the money and build the roads, the houses and the hospitals. But then, there is also the big problem of power.

The BIG problem called Power

The biggest mess in the infrastructure sector is power. Just days after forming the new government, Modi was faced with huge power-cuts in Delhi. The national capital which already has privatised power for years now, has failed to get its act in place. State Electricity Boards across the country are in huge debt. By some estimates, the number is pegged at over Rs 2 lakh crore. And not just distribution, the production of power itself has a wide range of challenges. The UPA government’s plan to diversify by including nuclear power in the energy bouquet has been met with wide resistance. Modi’s own ally Shiv Sena has been vehemently opposed to the Jaitapur nuclear energy plant. Hydro-power plants in Arunachal Pradesh and Assam are been opposed due to ecological reasons. Coal mining in many areas in central India are stuck in conflict zones with protests from inhabitants. The Modi government, ofcourse, cannot blindly clear power projects without keeping in mind the environmental cost. Perhaps that’s where Prime Minister Modi’s challenge lies. He talks about innovation, so he has to think innovatively. Or else all the asset creation plans of Modi will come to a grinding halt.

For complete budget coverage, visit: Budget 2014

Kunal Majumder is Associate Editor (Digital) at Zee Media Corporation in charge for dna online. He tweets @kunalmajumder

Originally published in dnaindia.com 

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