Opinion A modest budget

The answer we got was a masterpiece of fiscal gamesmanship. (No wonder Yashwant Sinha who has been finance minister himself spoke of baazigari). Faced with multiple demands,the guiding slogan that the FM adopted seemed to be the Hippocratic Oath: Above all else,do no harm. He had already begun reducing expenditure within the financial year when halfway through in September Pranab Mukherjee vacated the hot seat and Chidambaram was put in it. This “fiscal consolidation” meant an 18 per cent cut in planned expenditure during the last six months of the fiscal year. This allowed him room despite the slower growth in revenue to meet the deficit estimate he had inherited of 5.1 per cent at no worse than 5.2 per cent.

That difficult task done,the Budget for the next year was carefully calibrated by allowing a minimum of populist gestures but branding each new step cleverly. Thus we had mention of gender and disability and children and associated human development themes. The trinity the FM evoked—woman,the youth and the poor—towards the end of the first half of his Budget speech gave a golden gloss on the small rations he had the scope to allow. Thus the big fear of the markets that he will be tempted to give away large sops to secure the election even at the cost of wrecking the deficit was belied. The overall numbers came out such that for the coming year,the deficit was pegged at 4.8 per cent.

Yet,questions remain. The Economic Survey had estimated that the growth for the next year in GDP would be no better than 6.1-6.7 per cent and inflation could not be really expected to come down any time soon. Thus the FM could not bet on low inflation persuading the RBI to cut interest rates and give the urban middle classes any relief. The Budget document assumed a 13.4 per cent growth in nominal GDP for the next year implying an equal split between inflation and real growth at around 6.7 per cent. Thus there is no attempt here to go for a high growth strategy. The assumption is that the return to the 8 per cent which he announced as the core growth rate for the Indian economy was yet some distance away. It would have been too risky to “go for growth” this close to the election. If the UPA wins the 2014 election,then one could visualise a new strategy of high growth plus a lot more distributive initiative. But as Saint Aquinas said about chastity,‘May be a good idea but not yet’.

So the Rs 100 lakh crore question is: Will this Budget secure an election victory for the UPA? As of now,the jury must be out on that. Inflation has eroded the living standards of the middle classes who are rich enough to take on loans and pay their EMIs. They have dipped into their savings and do not like the UPA. The rural masses have benefited a lot from redistributive policies such as MNREGA and food subsidy. This Budget does not change the status quo on those two fronts. The middle classes did not gain much and the government is not promising to bring inflation down. Nor is growth going to speed up. The rural vote was always with the UPA,so that may not do much more in 2014.

Thus the Budget is an astute but modest exercise in not making things worse. That is not a trivial achievement.