It was widely believed that the 2017–18 Indian budget would see fiscal profligacy to help the ruling Bharatiya Janata Party (BJP) make a good showing in the upcoming elections in five states. Indian Prime Minister Narendra Modi and Finance Minister Arun Jaitley need to be commended for not succumbing to these temptations.

Modi and Jaitley have unequivocally shown that they will not cede even an inch of the ‘left of centre space’ to their political opponents. This budget carefully follows the trend in the previous three budgets of retaining and, where possible, expanding allocations for public welfare schemes.

These transfer payments and subsidies are necessary for achieving equity and welfare in a poor, predominantly market-based economy. But it is critical that these transfer payments are done with minimal leakages. Modi’s focus on improving the delivery of these subsidies is reflected in his oft cited example of ‘neem coating’ urea fertilisers.

By unabashedly proving its pro-poor credentials, Modi has ensured that he will not be electorally hurt by the emotive charge of being a ‘suit boot ki sarkar’ — Rahul Gandhi’s only successful attack on Modi. The fear of being identified as a ‘rich person’s man’ has goaded Modi into ostensibly shunning the company of Indian businessmen and avoiding budget measures that could be even faintly seen as pro-business or pro-investor.

Having secured his ‘left flank’, Modi now must attend to the political necessity of generating large-scale employment. The aspirations of India’s youth are exploding, and their patience for unemployment is wearing thin.

The Modi government must urgently generate jobs in large numbers, and this cannot happen without rejuvenating private investors’ sentiments — which are currently so fraught that growth in private gross capital formation is negative. Productive capacities in the economy are shrinking and with that job opportunities are becoming scarcer than they ought to be. Aspiring youth do not appreciate the nuanced differences between good employment, full employment and under-employment.

These measures for generating jobs cannot wait for the next budget in February 2019. Investor sentiment takes time to turn around, especially in an external and domestic environment so full of uncertainties. Some measures were indeed announced in the budget. But these need to be supplemented to provide the necessary momentum in job creation.

First, corporate income tax cuts must be extended to the remaining 8 per cent of firms that have been hitherto excluded. Corporate entities should be given the option to continue with exemptions or choose the lower tax rate for the next two years. Small and medium enterprises (SMEs) depend on larger companies for their orders, which means that if the sentiment and profitability of larger companies is not improved then an SME-focussed tax cut may not produce the desired results.

Second, personal income tax cuts should be extended to higher-income categories by levying the highest rate of 30 per cent plus tax on incomes above 2 million rupees (approximately US$30,000). This will give a boost to consumption, which is necessary for improving capacity utilisation in domestic industries. Revenue foregone will be recovered with the widening of the tax base and higher compliance.

Third, at least 400 billion rupees (approximately US$6 billion) should be allocated for public sector bank recapitalisation. Unfortunately, taxpayers will have to bear the cost of the past sins in order to unfreeze the credit flow from banks whose non-performing assets (NPAs) have climbed to a scary 11.5 per cent. Bank mortality should be permitted, while still safeguarding depositors’ interests, in cases where NPAs have gone beyond redeemable levels.

Fourth, private sector operators must be actively involved in the implementation of affordable housing and infrastructure projects. Current tardy implementation must be rectified by inviting private contractors to execute projects where land acquisition, procedural clearances and financial closure have been secured. These projects should be awarded on a transparent and competitive basis to deflect any charges of crony capitalism.

Fifth, the private sector should also be actively involved in the resuscitation of agriculture extension services and the creation of post-harvest logistics that would improve farmers’ connectivity with private retailers and e-markets. Private retailers would be ideally suited to be used as extension service providers and suitably incentivised.

All these measures will assure private investors that Modi means business. In Delhi he has been hemmed in by the need to propagate the correct political message of being pro-poor, but it need not be true that taking steps to boost private investment will queer the pro-poor pitch.

The calculus of Modi’s political messaging team could well be that his own persona and popularity would suffice to win the 2019 elections. But he would do well to take out an insurance policy against downside electoral risks by ensuring that private investors are enthused and actively working with him for generating jobs. Smart political messaging can remove perceived bias against pro-investor measures that are necessary for jobs, electoral success and economic dynamism.

Rajiv Kumar is Founding Director of the Pahle India Foundation.

A version of this article first appeared here at Mail Today (Dehli).