Understanding reforms

Surprisingly, public and media understanding of the annual budget remain fairly limited. For some reason, it has become automatically associated with relief provision. The fact that a complicated web of fixed government obligations leaves little elbow room is largely overlooked. The cost of running a sizeable bureaucracy is very high. Expenditure is more or less locked and cannot be subject to whimsical change. The tax structure can best be cleaned and the degree of freedom is limited.
What the government can do, and has done, is make provisions that guarantee continuation of the adjustment process. One of the most urgent matters is controlling the deficit. Until it is reined in, the debt will keep ballooning. Again, it bears reminding that government expenditure is very difficult to toggle. It must ensure huge payments and subsidies that overwhelm its running costs, regardless of security challenges and natural disasters that limit its spending capacity.
The tax structure is also important. The government has made visible efforts to clean it up, and deserves credit for its initiatives. Traditionally, there has been a lack of understanding about the economics of taxation at various levels. A tendency of piling tax upon tax has been observed, as in import duty, excise duty and then federal excise duty.
Now, the relaxation of regulatory duty is intended to give much needed fillip to the economy. Besides stimulating the trade machinery, it should trim deficits and debt in the medium term. Eventually, the tax regime will be structured around sales and income taxes only. But these are sensitive matters that cannot be implemented in one go.
Our resource crunch does not allow the luxury of spending our way out of downturns, as much of the economic north has done, countering the recession with stimulus packages, etc. Our growth policy accompanies the annual budget. It is approved by the National Economic Council and mandates much needed domestic reforms designed to reduce cost of doing business, improve competitiveness and make the bureaucratic system more adaptive to change.
Presently, efficiency and professionalism are compromised because hierarchy means everything. Loss making government entities will have to be privatised. We have tried professionalising the power sector, by incorporating experts from the private sector, and the exercise needs mirroring across different sectors.
The growth policy revolves around four basic principals. First and foremost is improving productivity, in which we lag behind much of the world. The present structure is riddled with inefficiencies that will have to be tackled individually. For example, the Civil Service needs reforms. Their perks need to be monetized to reduce a big burden on the federal exchequer.
Secondly, we need to make better markets. Our markets are uncompetitive and bureaucratic hurdles deter private sector involvement. At a time when such investment injections are urgently need and the private sector is already crowded out, we need to devise measures that facilitate their participation.
Thirdly, we need to build better cities. Other than our big cities, most come across as mostly rural setups. We need to make them more modern and conducive to growth and innovation.
Fourthly, we need to tap our youth potential more effectively. Once the youth is empowered, the middle class will swell and leverage the better markets and cities already erected, stimulating consumerism and commerce. We need projects that generate employment, empower consumers and engineer the second round multiplier by encouraging retail and entertainment.
These are some of the key reforms needed to put the economy on the path to sustained growth in the medium and long term. They cannot be provided by the budget alone. They are embedded in the growth policy. To expect the budget exercise to provide instant relief is erroneous. The growth policy is a more relevant narrative. The media should help with public understanding of this phenomenon, not scrutinise the budget for what it is not designed to deliver.

The writer is Deputy Chairman, Planning Commission.