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Act,don’t appease

UPA should rise above please-all tactics in this budget

Written by Sanjaya Baru |
March 13, 2012 3:30:02 am

UPA should rise above please-all tactics in this budget

A widespread view among India’s commentariat is that the United Progressive Alliance government has lost both the mandate to rule and the will to govern. Many have come to convince themselves that the year ahead will either see the government falling and calling for elections,unless someone manages to stitch up a coalition of carpetbaggers,or that the UPA will continue to muddle through.

While a snap poll may help clear the air,there is no guarantee that it would produce a convincing victor,or that a new coalition would secure power. On the other hand,any attempt to unseat the present government and bring in its place a new coalition of the willing would also not necessarily oil the wheels of policymaking and implementation.

Muddling through,taking two steps forward and one step back,is certainly a viable survival strategy for a beleaguered coalition. But this is not good for the country. If this persists we should expect a purely tactical budget that offers all things to all sections. A classic Congress Party-type budget.

A defensive,directionless Congress,under siege from coalition partners (with even Sharad Pawar launching an offensive on the economic policy front,opposing the ban on cotton exports,on budget eve),may opt for a purely tactical approach to budget-making.

Such a tactical approach would translate into a long budget speech by the finance minister with a paragraph devoted to every sectional interest. It would entail window dressing on the fiscal side and expose the finance minister to sectional demands from the unappeased,or calls for rollback by dissenting sections. Most importantly,a defensive approach would expose the government to further attack from both the opposition and coalition partners.

It must be borne in mind that while the major opposition parties,the Bharatiya Janata Party and the Left,are not ready for a mid-term poll,their aim will be to show the UPA up as running a dysfunctional government. They seek to wound the government and debilitate it for now,not yet ready to strike in order to defeat.

In response to this approach,the UPA government would be well advised to eschew the tactical low road on economic policy and instead take the strategic high road.

What would be the elements of such a strategic approach? These were best summed up by Prime Minister Manmohan Singh in his New Year message to the nation. The four pillars of a strategic budget will be — livelihood security,economic security,energy security and national security.

The UPA’s strategy of “inclusive growth” remains the foundational pillar of economically,politically and socially sustainable development. Policies that aim to promote the livelihood security of the people — promoting employment,improving the nutritional status of children and women,expanding educational opportunities and providing affordable healthcare — would be the first charge on the budget of a developmental state. Livelihood security also entails moderating inflationary pressures. This,in turn,has implications for fiscal strategy and is complicated by the fact that global factors are once again fuelling inflation.

In defining the second pillar,of economic security,Singh listed three priorities — promoting growth by encouraging new investment,ensuring fiscal stability both by raising the revenues required and reducing wasteful expenditure,strengthening the economy’s external profile. At a time when the fiscal and budgetary deficits have become unsustainable,when domestic debt remains high and external debt is rising,and the current account deficit has reached worrying levels,fiscal stabilisation has to be the second important pillar of budgetary strategy.

Fiscal prudence has also become essential to an anti-inflation strategy with the central bank declaring that monetary policy alone cannot win this battle if fiscal policy is not supportive. This means rolling back the pro-stimulus tax concessions offered in 2008-09. Policies aimed at attracting more foreign investment into India would naturally be a part of an external stabilisation strategy.

The third element that would influence budgetary strategy this year is the renewed concern about energy security. There are three factors contributing to this concern — first,the rise in global oil prices,both on account of an increase in global demand (thanks in part to US monetary policy and revival of growth in both developed and developing economies and in part due to rising tension in the Gulf and the fear of conflict); second,the rising subsidy bill at home due to uneconomic pricing of diesel,kerosene and LPG; and third,the wages of policy neglect in coal,nuclear and other sources of energy.

Finally,the fourth pillar of security that Singh listed was national security and the demand this would make on the finance minister this year should not be underestimated. India’s wider neighbourhood has become even more uncertain in recent months and there is a backlog of expenditures waiting to be cleared. The finance minister would do well to link defence procurement to industrial revival by using the budget speech to fast-track private sector participation in defence production. This would unleash a new wave of industrialisation in defence-oriented sectors.

Few analysts seem to believe that the government is capable of strategic policymaking and taking difficult decisions. There is a mistaken belief that a knee-jerk response to the recent electoral reversals would be to spend more money and not raise the required revenues,thereby worsening the deficit.

This is not a necessary political option. There are no important elections due this fiscal,and the outcome in Gujarat will be based entirely on local factors. Moreover,the opinion-making middle class and the urban commentariat want to see a government that works and a political leadership that can stand up and take decisions in the national interest.

Both Manmohan Singh and Pranab Mukherjee have the capability to offer such leadership. Working together,they can deliver a budgetary and economic strategy very different from the last two years and one that sets the agenda for a revival of growth and opportunity.

Adversity is the mother of enterprise. Pushed to the corner,with popular ratings at rock bottom and in the winter of their political careers,neither needs to look back in taking a step forward.

The writer is director for geo-economics and strategy at the International Institute for Strategic Studies,and honorary senior fellow at the Centre for Policy Research,Delhi

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