Foreign policy expectations from Budget 2016-17

Finance Minister Arun Jaitley would be presenting his third budget at a time when the global economy is undergoing severe stress. China has slowed down, the North Korean missile tests and the South China seas dispute has escalated tensions in the Asia Pacific region.

Europe has been hustled from one major identity crisis to another with the refugees adding a new dimension coupled with the credible threat of major terrorist attacks across Europe.

Also, Russia believes that the US and its allies are pushing for a new Cold War.

All these factors have dampened prospects of an early recovery of the global economy.

Many see the stage set for India to finally emerge as the rising star because of its GDP growth rates, a gung-ho PM and signs of relative calm in an otherwise volatile global environment. Despite this, India Inc appears to be viewing the forthcoming budget with restraint, largely because the previous two budgets were disappointing. But more importantly, the prevailing perception that the government is high on promises but falls short of delivery has tempered expectations.

As regards the feel-good factor that the 7.4 per cent GDP growth rates ought to have triggered, certain obvious facts are significantly confronting.

First, no one seems to be feeling the positive effects of growth. The price of everyday food items has sky-rocketed. Second, farmer suicides continue unabated. Depressed rural demand has exacerbated inequalities vis-à-vis urban India. At another level, the previous budget significantly reduced allocations in the social sector, especially education, housing and health, which has had its multiplier effect. And finally, for the past four years, corporate India has shown a net decline in profits.

These have serious foreign policy implications. After all, foreign policy is the creation of a brand. When the Prime Minister surprised domestic and international interlocutors with his special interest in foreign policy, his affable charm won friends and helped establish personal equations. He promised a new and open India. India’s brand value shot up globally. Brands need to be nurtured and nourished. If they are not, they suffer damage.

The Prime Minister announced a series of new programmes, such as, Swachh Bharat, Digital India, Make in India, Smart India, Skilling India, etc. Each of these had a positive resonance in terms of public perception but were not accompanied by a clear road map.

In the case of Make in India, the legal framework continues to remain fuzzy. Consequently, these programmes have failed to excite global investors and are likely to remain elusive unless there is clarity and transparency on tax laws, a clear intellectual property regime, the ease of doing business, a fast-track dispute settlement regime, simplified customs procedures, a strong enforcement system against corruption etc.
None of these are likely to materialize overnight because they are built on vested interests, many of whom enjoy strong political patronage. This will damage Brand India.

Similarly, the Prime Minister’s commitment to Central Asian Republics, SAARC countries and to Africa, in particular, for developmental assistance was warmly welcomed. How quickly these are translated into action would require substantial financial outlay and a plan for the early implementation of projects. Slippage would discredit the Prime Minister’s assurances and damage Brand India.

Unless the budgetary exercise is rooted in promises made, the third budget would go the way of the earlier two. Unfortunately, this time around, given the Prime Minister’s multiple promises on the foreign policy front, it would also seriously dent India’s credibility.

(The article is authored by Amit Dasgupta. Dasgupta, a former diplomat, heads the Mumbai campus of the SP Jain School of Global Management)