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Economy Issue 2019: Budget Analysis

The Power of the Familiar

Swapan Dasgupta is an MP and India’s foremost conservative columnist. He is the author of Awakening Bharat Mata: The Political Beliefs of the Indian Right
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The central message of the Budget is unspectacular but very important. In 2014, Modi charted a 10-year flight path that would revolutionise life in India. This year, after securing a resounding mandate that was also based on the ability of large numbers of beneficiaries breaking ranks of caste and community and voting for Modi, the Government has reposed its faith in the old approach. The newness of Nirmala Sitharaman’s Budget is purely cosmetic. The old approach has been vindicated and the flight path has remained unchanged.

ATAL BIHARI VAJPAYEE IS VERY FONDLY REMEMBERED. THE TALLEST LEADER OF THE Jana Sangh and BJP from 1957 till his retirement in 2004, almost every old-timer in the party has a Vajpayee anecdote, usually a humorous one. One that comes to mind in an immediate context centres on Vajpayee and Budgets. Never entirely comfortable with either economics or the complexities of the Budget, the former Prime Minister was routinely called upon to proffer his comments on the annual exercise, especially when he was a prominent member of the Opposition. Those were the days when the interest in the Budget was focussed on one question: which items would witness a tax increase? While other Opposition leaders would respond with comments such as “anti-poor” and “inflationary”, Vajpayee would make the anodyne sound a little more colourful. “Garib ke pet me laath” (kicking the poor in the stomach) was one of his favourite responses, a response that allowed him to steer well clear of specifics and economics.

Over the past two decades or so, the language of politics has changed hugely. While there are still the residual Lohiaites in Parliament who complain bitterly about the gaon (village) and Bharat being neglected in favour of the ameer (rich) and India, the focus has changed. The concerns now centre on issues such as the fiscal deficit, on global competitiveness and on disinvestment targets. Ever since the architecture of the Goods and Services Tax devolved decision-making to the GST Council comprising representatives of all the states and the Centre, even tax rates have acquired a large measure of predictability. The freedom of the Centre is now confined to only a few taxes: petroleum products, income tax and corporate taxes.

It may be said without the risk of over-statement that popular interest in the Budget has been declining steadily over the years. Even till the late-1980s, someone like Nani Palkhivala could fill a stadium in Mumbai and Kolkata proffering his views on India’s disfigured socialism that not only rewarded incompetence and dishonesty but punished the middle class and the enterprising. As a student of St Stephen’s College in the early-1970s—the high- noon of Indira Gandhi’s socialism—I remember the huge popularity of the Falstaffian Swatantra Party leader Piloo Mody, a trenchant anti-socialist. I remember his biting remark that “we have to distinguish between rational planning and Indian planning.” Of course, there were other voices arguing that Indian socialism was just a ruse for the government to subsidise crony capitalism and perpetuate a ‘semi-feudal’ state. In hindsight, it all seemed a bit tedious and characteristic of a nation that was failing to live up to the expectations of an independent nation. In the mid-1970s, revolution was in the air globally and the epidemic didn’t leave India completely unaffected.

It’s all very different now. Last week Nirmala Sitharaman spoke for nearly two hours in a Budget speech that generated only momentary excitement. Yes, there was a great deal of media interest generated by the fact that the red briefcase displayed by successive finance ministers had been unceremoniously dumped in favour of a red cloth covering with the Asokan lion embossed on it. Like the Economic Survey that was said to have discarded many of the assumptions of Anglo- Saxon economists and captured the essence of India’s behavioural patterns, a modest attempt was made to showcase the Budget as something more authentic.

In one sense it truly was. In the past, successive finance ministers had been bogged down by the mass of figures and statistics that they felt they must divulge as proof of their good intentions and successes—or, in some cases, the challenges that prompted them to take unappetising decisions. I recall that Arun Jaitley, otherwise a very lucid speaker when speaking with the sketchiest of notes, was criticised for not adequately explaining the philosophy behind the Narendra Modi Government’s approach.

On her part, Sitharaman shied away from making her maiden Budget speech an accountant’s report. There were a few facts and figures and some projections of outlays. However, in the main, this Budget speech of India’s first woman Finance Minister would have left the number crunchers deeply disappointed. And it was about continuity.

The Narendra Modi government often risks being labelled ‘incremental’ in its approach. In some senses the description isn't inaccurate. One of the hallmarks of a good politician is his or her ability to instinctively assess how much change the electorate can digest without getting uneasy

THE BUDGET HAD been preceded by erudite commentaries from many of those who—defying the intelligentsia’s inclination to hunt in a pack—had actually supported the Modi campaign of 2019. For them, the massive reaffirmation of the 2014 mandate was viewed as a signal for Modi to be ‘bold’ and undertake a new wave of reforms. Like the over-used term ‘regeneration’ that is delightfully vague and difficult to reduce to specifics, reforms have become an Indian mantra, invoked whenever there is any conversation on the economy. Prior to 2014, it centred on insurance deregulation, labour flexibility and, above all, on privatisation. When he assumed charge, Modi added a forgotten sector to the list—railways. Today, while insurance is a done deal, it has been replaced by demands for an overhaul of India’s inefficient public sector banks and renewed demands for the instant divestment of India’s biggest public sector white elephant—Air India.

Many of these featured in Sitharaman’s Budget—although the question of who in their right mind would want to buy Air India was left delightfully unaddressed. The Government renewed its pledge to stamp out the crony capitalism that had led to the loot of money that rightfully belonged to public depositors. It has tried, tentatively, to encourage the good Non- Banking Financial Corporations to extend more credit to a credit- squeezed economy; it kept its promise to keep the fiscal deficit in check and signalled its willingness to borrow, using the sovereign guarantee, from the international money market; and it made it amply clear that Foreign Direct Investment was a key feature of the Make In India programme that was now the successor of Swadeshi. Most important, it took a giant step towards redeeming its pledge, made by former Finance Minister Arun Jaitley, to lower corporate taxes to 25 per cent—a move that benefits all but 0.7 per cent of registered companies.

Finally, in a move that will be welcomed all over middle and emergent classes, PAN and Aadhar will become interchangeable for the filing of direct taxes.

These are important but modest measures and focusing on them will explain why the Narendra Modi Government often risks being labelled ‘incremental’ in its approach. In some senses the description isn’t inaccurate. One of the hallmarks of a good politician is his/her ability to instinctively assess how much change the electorate can digest without getting uneasy. In 2014, the Government, in its rush to push through reforms, attempted a Land Acquisitions Bill to facilitate public works. However, the message that resonated in the countryside was that the Government was seeking a free hand to forcibly acquire farmland and hand these over to real estate developers. It was a piece of misinformation that stuck and forced the Government to abandon the legislation.

This is a lesson that the Government has digested. However, the lesson isn’t that reforms shouldn’t be attempted but that to succeed, reforms must be covered in a veneer of populism. Demonetisation, for example, wasn’t presented as an attempt to reduce the dependence of the Indian economy on cash and an associated feature of GST. It was painted as a punitive measure against the fat cats who stored bundles of cash in their steel almirahs and invested their untaxed holdings in real estate and conspicuous consumption. This may explain why, despite the disruption of people’s daily lives for long and personal inconvenience, it was resoundingly endorsed by voters—first in the Uttar Pradesh Assembly election of 2017 and, subsequently, in the 2019 General Election. In 2019, the Opposition—encouraged in no small measure by economists who were angry that Modi didn’t care for their advice—listed demonetisation as an aspect of the ‘chowkidar chor hai’ campaign. It backfired.

The Modi government may appear to be plodding to those who believe that radical transformation can be achieved with the help of bulldozers. However, to those who have detected significant transformation of their lives in the past five years—or at least whiffed the winds of change—Modi's government is visibly different

Maybe it is unfair to compare the finger pointing of being an incrementalist with the shrill tirades of Rahul Gandhi that cost the Congress dearly in 2019. However, there are similarities. The Modi Government may appear to be plodding to those who believe that radical transformation can be achieved with the help of bulldozers. However, to those who have detected significant transformation of their lives in the past five years—or at least whiffed the winds of change—Modi’s Government is visibly different.

T HE DIFFERENCE LIES in two things. First, it is the ability of the Prime Minister to tailor his development objectives with a larger political goal. Secondly, and linked to this, is his ability to actually deliver on the ground. Where other governments had faltered by leaving things at the outlay stage and not bothering in the least about how much flowed through the pipeline and reached the intended beneficiary, Modi’s re-election was based on his claim that he had made the impossible very possible.

The choice of measures to judge the Government was transformational: electrification of homes, road connectivity, pucca houses, cylinder gas for household cooking and toilets for all. And, to cap it all, most of the projects were implemented without the usual quota of leakages. In West Bengal, Mamata Banerjee cleverly tried to appropriate these schemes and repackage them as her own. But this appropriation turned out to be a misadventure when they were accompanied by massive political corruption at the grassroots. The buzz around ‘cut money’ is calculated to haunt her endlessly, even as integrity has come to define Modi.

In this Budget, the Government has added drinking water and pensions to its goals. Taken together, the schemes, whose funding has been ensured this fiscal, have the potential to transform the Indian landscape. In the past, the BJP has been criticised by the Left for its failure to address issues linked to human development and instead, focus on the trappings of modernity. Certainly, that was one of the failings of the Vajpayee Government, which was compounded by its India Shining campaign that, in hindsight, struck all the wrong notes. Modi, on the other hand, has made a significant contribution towards improving the ease of doing business by reducing corruption and red tape. He has also helped expand the size and scope of the organised economy and boosted India’s revenue collections quite sizeably. However, in terms of projection the emphasis has been unendingly on the small steps the Government has taken to improve the lot of the unorganised poor. In this year’s Budget speech, Sitharaman announced that in addition to the 1.54 crore rural homes that have been completed, another 1.95 crore homes will be built between 2019-20 to 2021- 22. If this target is met without any whiff of scandal, Modi would have achieved the impossible—demonstrated that state-run schemes can also be held up as models.

The central message of this Budget is unspectacular but very important. In 2014, Modi charted a 10-year flight path that would revolutionise life in India—and not merely India Inc. This year, after securing a resounding mandate that was also based on the ability of large numbers of beneficiaries breaking ranks of caste and community—in large number of cases, women defied the diktat of the family—and voting for Modi, the Government has reposed its faith in the old approach. The newness of Sitharaman’s Budget is purely cosmetic. The old approach has been vindicated and the flight path has remained unchanged.

In 2024, when India faces another General Election, the cumulative effects of Modi’s 10-year dispensation will be seen, felt and assessed. Unless he miscues somewhere horrible, the verdict is unlikely to leave him despondent. The economists got it wrong before and they seem hell bent on keeping their track record intact. This Budget is a small milestone of a larger journey undertaken by the emerging New India.

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