India's Budget To Set Context For Vigorous Foreign Policy

Expectations from the budget are high in view of the years of stagnation. The economy is estimated to have grown by 4.9 percent in 2013-14, a shade lower than the government's earlier projection, but marginally above 4.5 percent logged in fiscal 2013. While the farm sector registered a healthy growth of 4.6 percent, a deep slowdown continued in the mining and manufacturing sectors that suffered from low investment sentiment, weak demand and policy bottleneck. In fact, this is for the first time since 1991-92 that India's manufacturing sector has contracted reflecting the crisis confronting the sector.

"India missed the first industrial revolution. It missed the bus for manufacturing decades ago. It is on the verge of missing the revolution on becoming a hub for low cost manufacturing. This is the last opportunity and we cannot afford to spoil it," said the finance minister, replying to the president's address and giving a clear indication that the budget will put emphasis on manufacturing.

Manufacturing contributes a little over 15 percent of the gross domestic product and with such a low base, economists say, India cannot have growth and create the jobs needed to absorb some 12 million who enter the employment market every year. Hence, the budget should aim at turning India into an alternative manufacturing hub to China, which is seeing an escalation in costs and its relations with neighbours is marked by territorial friction.

But inextricably linked to this are the development of infrastructure and inflow of foreign investment. The country needs a trillion dollar over the 12th Plan period ending March 2017 to overhaul its infrastructure. To attract foreign capital inflows, an environment conducive enough for foreign private sector investment is needed to be created with a fair and simpler taxation system and relaxed foreign direct investment (FDI) norms in certain sectors such as construction and defence. According to the world investment report by the United Nations Conference on Trade and Development (UNCTAD), India's ranking as a favoured destination in FDI dropped from third in 2013 to fourth in 2014. The numerous laws and regulations make it difficult for firms to do business domestically.