Budget 2014 lacks a ‘wow’ factor: Jim O’Neill, Former Chairman, Goldman Sachs

After the excitement of the election and Narendra Modi’s very large victory, and the associated rally in Indian markets since, for me personally, the budget was a slight disappointment. While emphasising a commitment to budget restraint especially for future years, as well as announcing some steps for boosting FDI in a couple of sectors, there was no real “wow” factor from what I could see. I might be simply suffering from very high expectations of course as I was, and still am, hoping that this is a leader that is going to take India closer to its true potential of economic growth and deliver the policies that are necessary to take the country there.

In many ways, the fact that the government only had six weeks in which to prepare might be important. I would like to see India under Modi develop a stronger framework for fiscal policy in which there is a distinction made between current expenditure on consumption and investment expenditure, and move away from the perennial focus on just the overall budget balance and deficit. Given India’s need for significant expenditure on things like education and infrastructure, I think the markets would be forgiving for higher near-term deficits if they were purely a result of increased expenditure on things like this, and at the same time show restraint on its many expenditure for consumption and maintenance.

In addition, I would like to see something stronger in terms of the inflation target and central bank independence in achieving a target set for them, as we can see takes place in some other important emerging economies. As I say, maybe I have very high expectations and I judge the Modi government on the ‘maximum governance, minimum government’ that the PM prides himself on, as well as a paper I first wrote back in 2007 I think on 10 things India needs to do to reach its potential.

Modi’s colleagues share my belief in all these things and I have updated them to be more current, and I think as and when these general things are embraced, Indian economic growth could accelerate notably toward 8% and perhaps achieve something closer to 10%. It looks to me as though the scene is being set for more down the road and this budget was really presented to ensure near-term fiscal credibility.

It is of course always possible that external factors may become less helpful to India with either higher oil prices because of Middle East disruptions and/or lower growth, but there is nothing India can do about these factors.

It just needs to concentrate on what it can control and improve itself. I would also add that from the data I have trained myself to follow, both the US and China, the two most important economies in the world, look as though they are improving.

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