The maiden budget introduced by the Narendra Modi government is a positive step towards his declared agenda “sab ka sath, sab ka vikas”. Those who expected some kind of “Big Bang” free-market or neo-capitalist reforms are disappointed. The budget just follows avowed objectives in the BJP manifesto for which the party received an historic mandate. If the self-styled experts or some neo-converts to the BJP expected anything different, then they have to blame their judgment for underestimating Modi government’s commitment to the BJP manifesto.

In a CNBC interview during the run-up to the Lok Sabha polls, Mr Modi clearly explained his economic ideas and emphasized his commitment to the poor. In numerous meetings across the country he repeated the same ideas before millions of people, yet some who apparently supported him are not impressed. Did they expect the Modi regime to do something different from what the BJP promised the electorate? Why do “experts” always expect something different from declared policies of leadership?

The budget is not a surprise for those who closely followed Mr Modi’s ideas in Gujarat. The task before the Prime Minister is to fill huge gaps created by uneven economic growth of the last few decades since the opening up of the economy by PV Narasimha Rao. The next few budgets have to focus on filling these gaps for the economy to achieve its natural growth trajectory. The budget focuses primarily on five major areas 1) Agriculture 2) Manufacturing 3) Housing 4) Infrastructure 5) Energy to achieve sustainable growth. 

The budget almost doubled allocation of grants to States and Union Territories compared to the previous budget, an important aspect that hasn’t received the attention it deserves from commentators. It seems States would be given full responsibility to implement schemes like MNREGA and “Sarva Siksha Abhiyan” in the budget. This is an important step towards federalism and devolution of powers from Delhi. Mr Modi repeatedly emphasized federalism and decentralization in his campaign, the budget indicates the first steps in that direction.

Agriculture and rural development received decent attention. A new “Pradhanamantri krishi sinchayi yojana” for irrigation has been launched with initial outlay of Rs 1000 crore; this could be scaled up in successive budgets. “Neerachal” for watershed development, “Deendayal gram jyothi yojana” similar to “Jyoti gram” in Gujarat for feeder separation in rural areas are some other new initiatives in the budget.

The budget promises changes to the APMC act in consultation with State Governments to create a common open market for agriculture produce. Farmers need sufficient storage backup and a mechanism to market their produce to prevent price fall in an open market. An allocation of Rs 5000 crore has been made for warehouse infrastructure fund; the budget also promises increased allocations to agriculture and rural credit with a provision to provide credit to five lakh landless farmer groups through NABARD in the current financial year.

The budget intends to boost manufacturing with emphasis on micro, small and medium enterprises to improve employment opportunities. Textile mega clusters in Bareilly, Varanasi, Lucknow, Surat, Kutch, Bhagalpur and one in Tamil Nadu are proposed with a sum of Rs 200 crores. Eligibility for 15% investment allowance in manufacturing sector has been reduced from Rs 100 crores to Rs 25 crores. A Rs 10,000 crore fund for start up companies to promote entrepreneurship and higher capital ceiling for MSME classification is proposed. A bankruptcy framework would be developed for SMEs to enable easy exit.

The budget talks about revival of SEZs, new industrial corridors between Amritsar – Kolkata, Chennai-Bengaluru, Vizag- Chennai, Bengaluru-Mumbai and a special focus on hardware manufacturing in Kakinada.

Infrastructure is another key area of focus. Infrastructure investment trusts with incentives are proposed to attract long term investment and banks would be allowed to raise long term funds for lending in infrastructure with minimum regulation. The infrastructure focus includes development of inland waterways; development of Allahabad-Haldia waterway is proposed with an estimated cost of Rs 4200 crores in the next six years. The idea is to link landlocked States to coastal ports through inland waterways for cheap transportation.

Power companies would get a ten year tax holiday if they begin operations before March 2017. An expansion of gas grid from 15,000kms to 30,000kms is proposed with steps to increase gas production. Priority has been given to renewable energy with ultra mega solar power projects in Rajasthan, Gujarat, Tamil Nadu, Ladakh and Jammu and Kashmir. A new scheme to promote one lakh solar agriculture pump sets, water pumping stations is proposed.

Housing is another major thrust area. To meet the housing-for-all target by 2022, plans for both rural and urban housing are included in the budget, including special allocation for low cost housing for the urban poor, with cheaper credit. Interest deduction limit on self-occupied home loan is increased from Rs 1.5 to Rs 2 lakh. A sum of Rs 7060 crores is allocated for proposed 100 smart cities in the current year, and requirements for built-up area and capital reduced for FDI in this area.

An integrated Ganga conservation mission has received Rs 2037crore allocation and tourist circuits to boost tourism proposed. Funds are allocated to establish more IITs, IIMs, AIIMS and other institutes of higher learning in different States. A sports university is proposed in Manipur; the budget has several small initiatives with Rs 100 crore outlay, such as the National Centre for Himalayan Studies in Uttarakhand.

Income tax exemption limits have increased from Rs 2 lakh to Rs 2.5 lakh for individuals below 60 years, and an extra Rs 50,000 for senior citizens. This gives modest relief to the salaried class, just enough to offset some extra burden caused by inflation.

Basic Import duty of 10% on telecommunication products not part of information technology agreement, education cess on imported electronic goods, exemption to inputs/components  used in personal computer manufacturing are some proposed steps to encourage domestic production in electronics. Clean energy cess on coal has been increased to promote clean energy initiatives. There is a big hike in excise duty on cigarettes, pan masala, gutka, and 5% hike on aerated sugar drinks.

The budget expects heavy investment from PSUs to improve the overall investment climate. Recapitalization of PSU banks through the sale of shares to retail investors is proposed to meet additional capital requirements. FDI in Insurance and defense has increased to 49% with full Indian ownership through FIPB approval.

Overall, the budget has ambitious plans to revive the economy with a 5% growth target this year and limit fiscal deficit to 4.1% of GDP. The vision is clear and comprehensive but nevertheless it is a daunting task to attract investment, particularly in infrastructure. The government expects huge investments through public private partnership for infrastructure. But much would depend on its ability to minimize leaks in expenditure and effective implementation of proposals.

The template of Modinomics is simple: to achieve self–sufficiency or minimum external dependence in areas of food, energy and defense. A modern economy cannot achieve inherent strength and overall prosperity without strength in these areas. This budget is a positive first step in that direction.