He is credited with lowering real interest rates, introducing tax deduction for interest on housing loans, making key changes in telecom policy, helping fund the National Highways Authority of India and sowing the seeds for the deregulation of fuel prices. Sinha also ended the 53-year tradition of a 5 p.m. budget, a practice the British had started to bridge the time difference with their Parliament.
"Bold" pretty much sums up the expectation India and its observers have of current Finance Minister Pranab Mukherjee. The economy has gotten over the scare of the 2008 global financial downturn, but persistently high inflation and rapidly rising interest rates are hurting growth. The sudden rash of frauds and corruption cases has not helped sentiment. Nor has the unexplained delay over some key reforms.
The Union government's fiscal situation - and the finance ministry's attitude so far in addressing it - are not very promising. So when BT decided to prepare a Dream Budget 2011, Sinha became the obvious choice as BT Finance Minister. Aided by a team of experts (see The Feeling is This Budget Might be More of the Same), Sinha worked out an eightpoint action plan for a Dream Budget 2011 (see The Sinha Formula).
One of the immediate concerns the budget must address, Sinha says, is taking growth back to over 9 per cent. The pressing issues of inflation, interest rates, savings and investment, and fiscal consolidation, says Sinha, "… will have to be taken up by the finance minister and squarely addressed". He emphasised equity and growth, which unless addressed, would produce an Egypt-like situation. "I am saying this with a sense of responsibility because I represent a constituency in the Lok Sabha which is one of the worst-affected areas by the Left-wing extremist menace," he says. Sinha's Dream Budget would:
Push growth with equity: For which the budget must reduce the plethora of development schemes run by the Government of India to a maximum of ten. (The Centre and the Planning Commission have better things to do than run a sheep farm in Jharkhand, he says.) The National Democratic Alliance or NDA government that Sinha served had started a village roads programme branded the Pradhan Mantri Gram Sadak Yojana, which, Sinha claims, is a huge success. "We ensured the money for this scheme is not wasted and every road is closely monitored from the beginning to the end. Today, in the countryside, quality roads have lasted for more than 10 years and are much better than the state roads," he says.
Curb Food Inflation: First, fix the distribution chain. The state agricultural marketing boards levy unreasonable charges at the mandis or markets where farmers bring their produce. The states should not hinder movement of agricultural produce. "There are inter-district restrictions, there are inter-state restrictions - let India be a common market," says Sinha. Then, go for a Pradhan Mantri Sichai (irrigation) Yojana, à la Pradhan Mantri Gram Sadak Yojana. He also points out that the government must revive extension services in agriculture, which have become defunct.
Check Corruption: This will need the government to empower elected panchayats and other agencies at the grassroots level in a transparent and accountable manner, and apply a carrot-andstick policy as needed. "Apply the stick when you find corruption and give the carrot when you find that they are doing their job honestly," Sinha says.
Lower the Fiscal Deficit: Go for tax reform. "There is no reason why the finance minister should not pick up what he considers to be worthwhile ideas in the Direct Tax Code and include it in the budget instead of waiting for the DTC Bill to pass muster in Parliament," Sinha says. On Goods & Services Tax, take a giant step by announcing a central GST and letting the states follow. "We should wait for the day when the two GSTs could be merged," he suggests. Amend the Constitution to allow for the transfer of some services to the states. This way, GST will become meaningful at the state level.
On the expenditure side, go for a smart card scheme to target beneficiaries of subsidies effectively. "I remember how on the expenditure reform side, we (the NDA government of 2000-2004) decided to cut down on many posts. I remember how I raised the rents of government employees all over the country. I remember how I stopped their leave travel concession," Sinha says. In fact, he says these highly unpopular steps cost him and his party the 2004 elections. "But I don't regret it - I don't regret it for a moment because I did right by the country."
The bottom line is very simple, says Sinha. "A finance minister and a prime minister need courage when they are framing the budget. If they can't face up to these challenges, then they should not be there, they should be somewhere else," he says.