The budget for 2018, at its core, re-enacts a familiar tension of Indian policymaking. On the one hand, it reassuringly tries to respond to genuine democratic pressure and economic need. Addressing rural distress, the crisis in agriculture and the appalling deficits in healthcare coverage are not populist measures. These are economic imperatives. Healthcare is, in no small measure, responsible for the fall into poverty. And the income uncertainty of farmers is too big an issue to ignore. But on the other hand, more alarmingly, the budget still leaves open the question of whether India has a coherent economic framework, an institutional architecture that can deliver on these promises. And there is a danger that even its appealing promises are running on empty since the fiscal allocations don’t quite match the costs.
In a sense, the budget tries to navigate three tensions. The first is the rural-urban tension. This budget is a belated recognition on the government’s part that its framework for economic development had severe limitations. For one thing, as Harish Damodaran has eloquently argued in this paper, the agrarian crisis was in part a product of government policy: Demonetisation, monetary conditions, commitment to low food prices, and agriculture trade policy all adversely affected farmers. So, a correction was long overdue. After the close call in Gujarat, it would be the height of political obtuseness to not respond to this political imperative. Some of the institutional reforms and financing mechanisms for investment in agriculture being proposed have promise. But the commitment to increased MSP support for crops seems not to be adequately matched by budgetary outlays. But it is striking that in agriculture, a government in its fourth year in office is banking on promise rather than achievement.
The second tension is the one between public and private, especially in the social sector. Both in health and education, the government is making architectural changes without inspiring confidence that the institutional designs are better than the old ones. For instance, in higher education, funding IITs through soft loans via the Higher Education Funding Agency (HEFA) and project-based financing rather than grants, is misguided. Much of the investment promised so far has not materialised. Public universities across the country are being ground to dust. It is not clear that this combination of incentive-based financing and non-existent investment is a recipe for education reform. The poverty of institutional imagination is signalled by the fact that Artificial Intelligence initiatives will be parked with the Niti Aayog.
The normative aspiration behind the health insurance scheme to cover 10 crore families for up to Rs 5 lakh a year is admirable. It is an extraordinary gesture and one hopes something like this succeeds. It also testifies to Narendra Modi’s capacity for thinking of big schemes that can change the narrative. But it is worth thinking about what this scheme might mean. It is now irrevocably committing India to a United States-type insurance-driven healthcare system. While there can be no disputing the need for universal health coverage, committing India to an architecture of delivery without serious forethought is folly. The available evidence on the Rashtriya Swasthya Bima Yojana (RSBY) and other state insurance schemes is not reassuring, both on cost and service. Again, there is no sustainable financial roadmap for such a scheme.
The good thing is that health is now becoming a political imperative, but we are still sleepwalking into delivery architectures without serious regulatory capacity. The tension between the promise of public investment and the architecture of the state is manifest in other areas. Public investment in infrastructure has energised some sectors. But in others, like Smart Cities, the gap between committed outlays and actual utilisation is quite wide. The budget speech was perhaps wisely taciturn in not trumpeting the results of past commitments of this government to investment too loudly.
The third tension is between Davos Man and Make in India. Make in India has, to put it mildly, been a non-starter. In some ways, this budget is an acknowledgement of the tension between the loud commitment to openness and the hard realities of industrial policy. For the first time, we are beginning to reverse commitments to lowering customs duties. We will let people who understand how supply chains work figure out the effectiveness of these measures. But there is no doubt, as the finance minister himself signalled, this is a special moment. We officially signalled a minor reversal in globalisation. And we also potentially signalled a new political economy of customs and tariffs, where there will now be constant jostling over which sectors get these concessions. So Davos Man will finally be returning to our pre-1991 roots. Some may argue this is not all bad, but it is a wake-up call that we have clear choices to make.
But the biggest disappointment in the budget is this. The UPA left a horrendous institutional tangle. But as the Economic Survey pointed out, private investment is picking up only tepidly, gross capital formation slowed down for much of the duration of this government. Much of what needs to be done to revive this is off-budget. But the budget does not indicate how this elephant in the room will be tackled. It should be a sobering call that even after four years of this government, there is more the feel of a crisis budget, than a new vision boldly taken forward. The budget proves if you try to be all things to all people, at some point reality will come back to bite.
It is sobering that the budget recognises that. But it is not entirely reassuring that it is still bluffing its way out on the three tensions — rural vs urban, public vs private, and global vs Indian. It has no coherent framework around any of them. With inflation rearing its head, oil prices rising, political uncertainty increasing, you might say that this government also frittered away opportunities. With the Rajasthan by-elections, in a small way, signalling the possibility of a churn, 2018 will be interesting indeed. The most credible thing about the budget was the government acknowledging its own nervousness.