Budget 2016: The triumph of centrism

Budget confuses government’s rabid rightwing supporters more than it annoys its opponents.

Written by Pratap Bhanu Mehta | Updated: March 1, 2016 11:59 am
New Delhi: Finance Minister Arun Jaitley leaves  from North Block to meet President before presenting the Union Budget 2016-17, in New Delhi on Monday. PTI Photo by Vijay Verma (PTI2_29_2016_000042A) New Delhi: Finance Minister Arun Jaitley leaves from North Block to meet President before presenting the Union Budget 2016-17, in New Delhi. (Source: PTI)

The Union Budget 2016 has been crafted under the most extraordinarily challenging economic environments India has seen. The external environment is both uncertain and volatile, the inherited logjam caused by stressed banks and the stressed private sector has yet to be broken, poor monsoons have caused immense rural distress, and demand, a central pillar of growth, has been tepid. Many of the measures needed to face up to this challenge are not, strictly speaking, budgetary. Nevertheless, the budget is of political interest on three counts. The government’s previous budgets were rightly criticised for the lack of a clear framework. Does this budget break new ground? Second, does the budget signal any appetite for political boldness? Third, which constituencies does the budget address?

Watch Video | The Big Picture Of Arun Jaitley’s Budget 2016

This budget is certainly a huge improvement over Finance Minister Arun Jaitley’s previous budgets. It has a much greater sense of purpose and direction. It signals macroeconomic credibility by adhering to fiscal deficit targets. In an age when politicians are derided, the reluctance to recklessly spend our way out of trouble requires political acknowledgement. In many ways, this budget is rich in ideas; but also ones that make it hard to assess. It embodies in muted form what the Economic Survey calls “persistent creative encompassing incrementalism”. But one corollary will be that the judgement will also be incremental, as the various promissory notes on which the success of this budget rests unfold. The budget represents what might be called the abiding centrism of Indian economic policy. Heated debates may spin from left to right; but governance finds its centrist measure in several ways. The budget continues a greater reliance on indirect taxes as opposed to a concerted effort to expand the direct tax net. This is politically expedient, even if regressive. But no political party will transform the citizen-taxpayer relationship by a move to more direct taxes. Second, there is a deep consensus on the welfare state. On that front, the continuity between this government and the previous one is remarkable: From the continuation of MGNREGA and health insurance to a package of interest subsidies. The potentially most far-reaching change is the promise of giving Aadhaar statutory status and making it the basis for direct benefit transfers; but that is for the future. Subsidy reform, if any, will be incremental in the meantime. Third, even the most muscular of governments cannot sustain an aggressive defence build-up. Fourth, there is no appetite for a massive roll-back of the state where it is not needed. There will be some crisis-driven disinvestment but no radical reimagining of the state.

The budget will buttress the sense that the government has been practically sensible in small steps, but not bold. It continues on the path of fiscal devolution set by the Finance Commission. The ambitious provision of LPG connections to all is quite revolutionary, for its health, gender justice and aspirational effects, though its political-economy effects on the subsidy bill will become clear over the next few years. It is bringing the poor front and centre in unexpected ways. It goes to great lengths to reverse the government’s pro-corporate image. The increased outlay on infrastructure, particularly the Pradhan Mantri Gram Sadak Yojana, is a no-brainer. Rural connectivity is great for growth; and power and logistics are key to India’s competitiveness. Symbolically, this budget speaks to the government’s potential strengths: Power, infrastructure, railways, and petroleum and gas. This government is investing in four ministers: Piyush Goyal, Nitin Gadkari, Suresh Prabhu and Dharmendra Pradhan. A lot will hang on their capacity to implement.

The budget also speaks to the government’s weaknesses. Despite the promise of new insurance schemes, it is hard to avoid the conclusion that health and education still remain blackholes for this government. The allocations in education are up only marginally; there are no new ideas except the half-baked one of facilitating some “special universities” to escape regulation. Despite the fleeting appearance of the middle class as a political force, the focus on rural and the urbanising rural is back. Politically, the budget was expected to signal a shift in priorities. The odd changes in taxation provisions for future provident fund withdrawals make it a budget hostile to the middle class. This will have interesting political repercussions. Arguably, the boost to the real estate sector might benefit some sections of the middle class. But its intent is clearly to revive a collapsing real estate sector. There is no question that rural India needs a lot of investment. The real issue is whether the scale of support promised will be enough to stimulate rural demand in the short run and transform agriculture in the long run. There is reason to believe the outlays will fall seriously short of both objectives. So it will leave the question of rural support for the government up in the air.

But the most pleasant surprise is the direction in which we want to go on the environment. An additional cess on coal and taxes on cars are signals of a long-overdue resolve that the environment is no longer a luxury. There are small administrative victories like the abolition of the distinction between plan and non-plan expenditure. But equally, it is disappointing the budget does not invest enough in the state itself. The state has serious capacity constraints, and some of them will require a great deal of investment. The state has also signalled a much greater resolve on reforming tax administration. The devil is in the detail, though a lot of the detail for small enterprises is encouraging.

The politics of the budget will, in the final analysis, depend on whether India’s animal spirits are revived. Following the candid lead of the Economic Survey, the budget acknowledges the deep institutional quagmire that has stymied the economy. The provisions for bank capitalisation seem, by some accounts, low. If it turns out not enough to restore credibility to banking, we could still be in trouble. There is a promissory note of a lot of new regulatory institutions or the emendation of existing ones. The state is moving ahead. We don’t know if Indian capital is ready to play by the new rules. But for the time being, it could be said that this is an artful budget. It displays a cautious prudence. But it also confuses the government’s more rabid economic rightwing supporters more than it annoys its opponents. In that sense, it represents the triumph of a sensible democracy.

The writer is president, Centre for Policy Research, Delhi, and contributing editor, ‘The Indian Express’.

For all the latest Opinion News, download Indian Express App

  1. a
    ak.dev
    Mar 1, 2016 at 9:54 am
    Author seems to hate Modi supporters. Otherwise why he should use the RABID as an adjective to Modi supporters. Not only this author but most lefties don't tire abusing Modi supporters. When Modi supporters react to these authors, they become angry and more abusing.
    Reply
    1. O
      Observer
      Mar 1, 2016 at 10:02 am
      MMS had the best interests of the people in mind. That is why he made our per caipta go up sharply from 20000/- to 80000/- per annum. Modi promised, and came back to help the farmer, after the farmer was on his deathbed. If there is no magic wand, why promise instant "Acche din"
      Reply
      1. A
        Arun Mehta
        Mar 1, 2016 at 11:03 am
        It is now very clear that R.G. remark Suit -boot jibe has made MODI nervous and in panic he has done course correction. Bkakts has to support him to keep him alive till 2019.
        Reply
        1. A
          Aseem
          Mar 2, 2016 at 5:05 am
          And with this, sir, your unmasking is complete
          Reply
          1. S
            Sanjay
            Mar 1, 2016 at 7:18 pm
            One can see, traitor loving, fear mongering , congress party slave, Pratap Banu Mehta squirm. It could not have been easy on him.
            Reply
            1. A
              Aditya
              Feb 29, 2016 at 8:55 pm
              Mr Mehta consult some good psychiatrist. You want to say budget is good but government is bad. If same budget would have been presented by ChorDimbaram , you would have written long piece praising HER MAJESTY. Such a slave mentality you are.
              Reply
              1. I
                IslamForFoools
                Mar 1, 2016 at 5:44 pm
                I feel more proud and more alive to be Hindu when jihadists like pratap bhanu mehta, take side of islamic terrorism and against hindus. I want to devout my time, money and life for fighting against islamic terrorism.
                Reply
                1. I
                  IslamForFoools
                  Mar 1, 2016 at 2:22 pm
                  Kil him, no other options for leftists islamic terrorism, kil him if u r near to him
                  Reply
                  1. I
                    IslamForFoools
                    Mar 1, 2016 at 3:27 pm
                    You are on side of ISIS allah worshipper terrorists, so no need of your opinion, all you people deserve is bullets in your head.
                    Reply
                    1. H
                      Harshawardhan Joshi
                      Mar 1, 2016 at 5:30 am
                      I appreciate analysis. One who is living in rural areas or more so in periurban area, I appreciate the focus of this govt on agriculture and rural economy. Many may not realise it but situation in rural area became grim due to successive draught. Rural economy as on the verge if collapse. As a doctor I see many patients from rura areas abondoning the fight to live.people will ask is there any gurantee that patient will become better? If it is then try. If it's not we prefer to take patient home. This was because of extreme non availability of resources. This budget has found its focus right.
                      Reply
                      1. S
                        Sreenivasan
                        Mar 2, 2016 at 10:39 am
                        Those who fish in the stock market expected a boost to corporates. Especially the BJP supporters - the traders. They were shocked and the shock reflected in the share market on the budget day. Next day, somebody gave them a push from behind pointing out the one line the Minister had added about RBI. He had given a hint that RBI is being brought under the government, curtailing its independent role. On reading the one liner, the traders jumped and shouted in happiness, taking the market up by about 700 points and continuing the rally today. This is the same market that will shed a thousand point, if a report from East or West market reached them which they thought may be good or bad, but can't say. But now it is okay, the push from behind is coming from the government.
                        Reply
                        1. G
                          Gopal
                          Feb 29, 2016 at 11:17 pm
                          What kind of language is this "rabid right wing supporter"? Why does it do so? Why is that good? This is the kind of nonsense that has become standard for this paper. With the destruction of any attempt at balance, the spirit of Ramnath Goenka has long bee disposed.
                          Reply
                          1. P
                            POLITICALONION
                            Mar 1, 2016 at 11:34 am
                            First things first. Congress's flagship scheme! Congress doesn't get the joke neither their leftist loser friends, in spite of their compensatory claim of being intellectually bright. The flagship Congress scheme, is indeed 'a monument of Congress's failure', because even after 60 tears of their rule, 30 years of 'Gribo Hatao' screaming, a w coterie of JNU experts making policies, all they could come up with was giving millions of people- 100 days of dole. That is what happens with leftonomics, all over the world. They want to distribute without creating wealth. First they tax heavily those who produce wealth and they give dole to those who don't, at the same time they suppress entrepreneurship , and when they run out of money they print more paper money to keep distributing to those who have now become habitual of living on dole, eventually everyone has lots of paper notes but without having any value, then people line up with stacks of cash to buy a loaf of bread, remember Russia? So, the Congress's scheme is a monument of failure, but it has also become a political and social compulsion in India, India having been made such a poor place with very little opportunities for people to become entrepreneurs and create wealth for themselves that the present government has to continue with this scheme until the conditions improve, which could take decades. But the joke is still on the Congress and the Left, got it? Then we come to the budget. Right wing is not confused. I am not. It is as right wing budget it can be. Only the packaging is left. That's why the left is confused. India needs it's rural sector to become productive i.e. create wealth, that's why this budget is telling 60% of India's agriculture dependent potion (who produces 15% of the GDP), to get up and get a real job! that is as right wing as it can be. Got it? Electrification and roads to villages are not being made just to make them keep working in the fields, it is ALSO for them to set up small scale industries, get educated, start up, in those little villages. Contrast it with giving them free loans and subsidies which Congress has been doing. Got it?
                            Reply
                            1. P
                              POLITICALONION
                              Mar 2, 2016 at 3:30 pm
                              The only people who are confused are leftists because in their pursuit of power and fooling people, they paint right wing economics just about giving benefits to big corporate houses ( they call it crony capitalism), whereas right wing economics is about making people taking responsibility for their own uplift with state providing supporting structure for them to become achievers; in contrast leftonomics is about state acting as a dole distributor with the aim of making people state dependent losers who would keep voting them out of compulsion. This budget is as right wing as it can be as it aims to provide support to rural low productive India to become productive achiever.
                              Reply
                              1. P
                                PKR
                                Mar 1, 2016 at 1:27 pm
                                The investors do not intend to sell cheap and buy dear. Hence the logic of pre budget and buy afterwards does not hold good. Also the sharp correction never happened in 7 years. It has happened to the reaction to the budget. The global cues still do not support a bull run .The budget cleverly tries to boost rural demand ,which has been supported by the market as a good idea.
                                Reply
                                1. P
                                  PKR
                                  Mar 1, 2016 at 11:12 am
                                  The stock market does not subscribe to the writers views. It has surged today the most in 7 years on a single day.Hope this removes his confusion and re writes his article.
                                  Reply
                                  1. H
                                    Hindu
                                    Mar 1, 2016 at 10:19 am
                                    This Bhanu Pratap URGENTLY needs 14 injections around his stomach as he is inflicted with the same Rabies that Congress Party top leadership is suffering from !!!
                                    Reply
                                    1. A
                                      abdul narayan
                                      Mar 1, 2016 at 3:41 am
                                      You paid trolls. How is business?
                                      Reply
                                      1. J
                                        Jayesh
                                        Mar 1, 2016 at 10:58 am
                                        Article seems to be written for the heck of it. Political commentator should stick to political commentary and leave economics to economists.
                                        Reply
                                        1. A
                                          ashok
                                          Mar 2, 2016 at 6:20 am
                                          BJP policies has always been a false dawn. They are boisterously liar and pretenders. The GDP figures based on new series is showing growth rate of 7.3%. In 2004-2013 during UPA rule GDP growth was 9% for 9 years and in one year it touched 10%. GDP then was calculated at factor cost which means indirect taxes were not added to final price. Today very smartly the GDP is at market prices which means indirect taxes are added and yet it is only 7.3%. If we calculate the GDP based on old series (ie UPA regime) then the actual GDP now is only 5.6%. Whom are we fooling. Our PM insulted aadhar and scorned at MNERAGA for farmers. Today he has taken a U turn and suddenly the Budget is driven only by aadhar and farmers. Is this for real ?. Extremely no thought process. In one shot you have become from rightist to centrist. India for the first time after 30 years have a absolute majority ...BJP with 282 seats and yet the budget is like a whimper as compared to what reforms were initiated by MMS in 1991. From that angle it is a disastrous budget. What can one expect from the party?
                                          Reply
                                          1. A
                                            ashok
                                            Mar 1, 2016 at 6:45 am
                                            How did the BJP who rejected aadhar and PM himself scorned at MNERGA and agriculture in the parliament suddenly decide to focus and support these 2 key reforms UPA had initiated. Are they now realising that 20 months of their rule produced nothing and should thank low oil prices. Remember PM promised doubling MSP prices for farmers during election and forgot about it in the first 2 budgets and now quickly realises the same. UPA gave us 9% growth every year for 9 years when they trebled our GDP from 640bn usd in 2004 to USD 2 trillion in 2013. This was acheieved due to correct strategies. Nice to see PM following congress ideas for inclusiveness
                                            Reply
                                            1. Load More Comments