The Union budget was presented against two anomalous circumstances. In the absence of the Economic Survey, and increasing doubts about what official GDP statistics mean, there was a less clear analytical context for the budget. Broadly speaking, the macroeconomic story in terms of inflation, current account deficit, and budget deficit looked stable on the surface. But the sense of underlying pessimism occasioned by the agrarian crisis and uncertainty over job creation was bound to cast a shadow over budget priorities. This sense of crisis is compounded by the political context. The budget comes barely weeks before the election. There is competition and one-upmanship on announcing new support schemes for a range of social groups. Given the Congress’s ambitious welfare announcements, it was widely expected that the government would respond in kind.
This was not just a budget: It was an election manifesto, and a tepid one at that.
In a curious way, this budget is not a triumph of the NDA as much as it is a moral victory for the UPA. This triumph is symbolically marked by one scheme: MGNREGA. The Modi government had come to power with a view that a scheme like the MGNREGA would be rendered irrelevant by Modinomics. The MGNREGA has been, for the BJP, a symbol of all that was wrong with the economy: The need for the MGNREGA was a sign of a larger economic failure, its presence distorted markets, and the solution was to do away with rural distress altogether. If we judge the BJP by its own yardstick, the fact that it ends the year with an increased allocation to the MGNREGA symbolically marks its own admission of failure. It is the visible totem of the fact that in terms of enhancing rural incomes, it broke no new ground.
It is also striking that years after economic reform, changing underlying economic sentiment is still so dependent on wider-ranging budgetary measures. The mantra seems to be: The way you change economic sentiment is by providing something for everyone, through budgetary means. So everyone — farmers, workers, middle classes, soldiers, homeowners, small businesses — needs to be given something. And this should be done in a way that there is no pain to anyone: No rollback of wasteful subsidies, no hike in taxes and so forth. The political attractiveness of an all gain, no pain budget is understandable, particularly for a government that inflicted so much needless pain in the form of demonetisation. But this cannot be a sustainable paradigm for a successful budget.
But the power of the Opposition is palpable in the embrace of a new paradigm of welfare: Direct cash support schemes of all kinds. Normatively, there is a powerful case for the two major schemes the government announced — a pension scheme for the unorganised sector and direct cash assistance to small farmers. But the latter seems like a hurried response to the Congress’s minimum income guarantee scheme, without thought for the overall welfare architecture into which this will fit. There will also be lingering concerns about targeting. A pension scheme for informal workers is warranted. But do we have the income data to ascertain informal workers earning less than Rs 15,000 a month? Similarly, the ambition of cash support of Rs 500 a month to farmers seems insultingly tepid, given what states are already doing. But the hope seems to be that by putting a third of this cash immediately in bank accounts, the BJP can show that it is making a down payment on larger cash transfers in the future. But that is the kind of thing that might be appropriate for the first year of a government, not the last term.
Will the budget help the government regain control of the political narrative? It depends on how credible you find its narrative. It is interesting that the budget speech began by framing the reform narrative as an assault on crony capitalism: Transparency on NPAs, the IBC code and others were touted as measures that would clean up the allocation of capital in India. But these claims come against the backdrop of more than a measure of suspicion that the government’s real quarrel with the RBI occurred precisely at the moment it was doing a clean-up job and the credibility of all investigative agencies is in tatters. The government, not unjustifiably, hopes that a slew of tax collection reforms — rationalising GST, making income tax offices assessee friendly, reducing intermediaries — will make India a nation of tax payers.
This is a sensible direction. But it is also offset by the question of credibility. Will the cash transfers and sops help? So here is the nice secret every voter knows. Now that they have been announced, it is hard to imagine any government rolling the cash transfers back without replacing them with something more substantial. These are the schemes elections give us, not particular governments. Like on reservation, all political parties will score a draw on social sector schemes.
The government hopes to revive the construction and real estate sectors, but after mismanaging the sector, albeit with the good intentions of cleansing it. But, finally, there is the deepest credibility crisis of all: The crisis of numbers. The revised GDP figures are showing an 8.2 per cent growth in the year of demonetisation with impressive agricultural growth. With that kind of growth, what is the cause of such widespread distress in the first place? Even this budget will assume a nominal growth rate of close to 12 per cent. Is that number achievable?
In a democracy there is nothing wrong in a budget being politically responsive. In the case of this budget, there is a question, however, of whether it is proper to use a budget barely weeks before an election to tie the hands of a future government by announcing big ticket commitments. This budget has an air of desperation about it. But the abiding question for India is: Is it condemned to these ad hoc welfare interventions or can it think of a welfare architecture that is more meaningful, credible and sustainable? And what is the long-term growth strategy that underlies it?
Kamdhenu is the divine cow that fulfils all desires. This budget is, in the final analysis, an exercise in Kamdhenu miracle making: It seems to promise something for everyone. But the real secret of Kamdhenu is that there are no miracles. In the end, Kamdhenu gives to those who do the right deeds. But we are in economic territory where an odd combination of desperation and miracle-making has replaced believable economic stories.
The writer is vice-chancellor, Ashoka University. Views are personal