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Mainstream, Vol XLVII, No 30, July 11, 2009

Union Budget 2009-10: Logic, Limitations and Prospects

Saturday 11 July 2009, by Kamal Nayan Kabra

In the wake of the unprecedented fiasco and impasse reached by the global hegemonic system without facing any external threat, many ideological and policy debates are kicking up a lot of dust and at the same time producing some enlightenment all over the world. At the same time in India as the political and other groups digest the implications of the 2009 mandate and its qualitative aspects, the Union Budget 2009-10 seems to have occasioned a debate as also a certain framework for its conduct. True, the corporate sector-dominated media has upfronted the sense of disappointment and some kind of a dismay felt by the well-to-do sections, but there are hardly any signs of a general enthusiasm or a well–informed debate about some of the larger issues opened up by the Budget proposals and their underlying logic and political calculus. Instead of getting lost in the pluses and minuses under various Budget heads, it is our attempt in the following to at least flag some neglected but long-term questions about development policy in general and the fiscal policy in particular as seem to arise from a somewhat novel thrust visible in the present Budget, of course in a somewhat hazy form presently

Alternative Approaches

Given any number of ex cathedra statements and their vociferous reiteration, especially in the form of an agenda of what is tactically called ‘economic reforms’ expounded with schoolboy enthusiasm and single-minded zeal in the Economic Survey 2008-09, it is easy enough to conclude that the proposals contained in the Budget 2009-10 are nothing but another instalment of the ideas derived from the failed Washington Consensus. For better effect/ credibility, the exponents of such reductionism may as well throw in the statements of some leaders of the G-8, including some neocons, that what the world needs presently is a new consensus, anchored in social entrepreneurship and social regulation. It has to be a consensus that marks a sharp departure from the market fundamentalist position placing full faith in the efficacy of an economy governed by market prices (credited even to price risks efficiently), preferably by border or world market prices, with as little social answerability as can be sustained without inviting total breakdown.

It seems in a highly complex and active political -electoral democracy and structurally, institutionally, behaviourally and operationally highly complicated economy such as that of India, any mechanically drawn conclusions from large narratives appear to be essentially substitutes for analytical examination of the fiscal proposals and their likely interface with the multifaceted socio-economic scenarios. Also such dismissive views fail to appreciate many operational constraints applicable to any incremental exercise, such as the annual Budget of any government. Essentially, the underlying design, socio-economic logic and élan of a Budget is generally much more than the sum total of its proposals and has to be contextualised. It also needs to be appreciated that at any given point of time, notwithstanding the political urges, rhetoric and commitments, the script of an annual Budget is hardly capable of overhauling or designed to overhaul the existing structures, processes and outcomes beyond a limited extent, except when a shock therapy syndrome is generated. Clearly the global crisis of Western origin and primary effects has not been able to generate the shock mentality of the 1991 variety. In any case, a repeat of such a syndrome would have caused a blow against the deregulated marketisation processes. More particularly in the absence of powerful political mobilisation, based on pressures emanating from either the inner compulsions or external impositions backed by some intellectual articulation for some alternative policy designs, the criticisms of this kind, juxtaposing one kind of fundamentalism with that of another kind, remain sterile. This is because little effort is mounted to try to strengthen alternative countervailing economic agencies (and not simply abstract ideas) to spearhead alternative politics for alternative policies in order to take over the space various asocial and anti-social cocooned economic agencies may be made to vacate.

None of the above attempts are even remotely perceptible to deny the prevalence of a hardcore of by now openly demonstrated pro-corporate thrust and practically operative influences in the Indian policy arena. In fact, such features date back, may be in somewhat muted versions, even to the pre-liberalisation era. But much to the chagrin of the neo-liberals, even to this day what we have in India is an incomplete implementation of the so-called reforms agenda in some crucial respects. That the present Budget has not been able to please the big capital by announcing transfer of public assets, even though camouflaged as people’s ownership, or reduce the tax burden on the corporates (in effect lower than what appears in law, even without tax planning and evasion) or that by making a hefty increase of about three times the present level in government borrowing, there are fears of crowding out the corporates from making a draft on household savings and may have disturbed them by seemingly big-ticket social spending are no genuine grounds for judging the character and impact of the Budget. These are parts of the psychological warfare indulged in by big business to scare the growth-seeking policy pundits. The divergence between the policy agenda articulated in the Economic Survey of the past two years and the actual policy course charted by the Budgets, including the current one, may well be taken to indicate how unlikely and non-feasible is their implementation even in the foreseeable future. Of course the FM too must have found the so-called professional advice impractical and non-feasible, if not much else. Nonetheless the wide publicity given to it by the media and in the context of the absence of any Left counter-pressure and agenda this time has pushed the corporate and stock market speculators’ expectations sky-high. It is in this context probably that the Budget papers drop hints to assure the industry lobbies that the Budget is not the only occasion and forum and that by means of an ongoing and participatory exercise the concerns of the industry can always be addressed. It seems the business circles are ill at ease with the Budget not so much for what it has done but for what it has failed to do. Had the financing of the social component of public spending were to be financed by, say, deficit financing, the adverse business response could have been a little more moderate. Furthermore, it would be naïve to take the share market response seriously: they are a set of hidden casinos, neither endowed with economic wisdom nor social empathy. The post-Budget assurance to big business regarding shedding of public sector equity surely promises them a gold mine of opportunities for low-cost acquisition of prime public assets. After all, the overall tax burden has come down from 11.2 per cent of the GDP to 10.9 per cent and the promise of GST would increase the share of indirect taxes to be paid by the aam adami, besides removing the rent of authority—collection-prone discretionary imposts on different sets of commodities. These are good news to business interests.

The above propositions have been brought out in sharp relief in the present exercise at the very outset in order to highlight the complex character of the recipes dished out in the Union Budget this year. A nuanced and realistic appraisal of its character is in order not simply for its intrinsic value but also for pointing out the space and forces that can be or rather need to be mobilised for making the icing and politically correct posturing with some limited real content a relatively more prominent, real and cutting-edge component of the socio-economic initiatives that appear on a first look to have gone a step ahead of the routine ones. It may well be so in order to give a demand stimulus in the present global slowdown syndrome. But even if it amounts to making virtue of a necessity, the objective factor is that it is there and its roll-back would indeed be a tough task in future.

One has to reckon with the fact that such socio-political and economic initiatives concerning the poor and rural areas seem to remain largely ad hoc add-ons and lack a comprehensive, coherent and ground reality-based appreciation of the constraints that have reduced the effectiveness of many such smaller but ongoing initiatives at least since the days of Garibi Hatao politics. Since demand constraints and the quality of economic growth have been given grossly inadequate attention so far in Indian development strategies, one can see in these programmes taken in their totality a token beginning to address the issue of the inexorable primacy of the domestic market expansion for providing secure and socially just foundations for the much-hyped but vague commitment to inclusive growth. Little wonder the much-talked-about problems at the implementation level remain a hardy ritual in the form of underlining the necessity of toning up the delivery mechanisms. What fails to be appreciated is that the discretionary, partial coverage-based top-down schemes are inherently a bureaucrat’s delight and people’s nightmare. Recognition of the need for the factors outlined above can possibly help prepare the ground for alternative policy thrusts, if not wholesale transition to some different and more pro-people agenda. The present Budget, insofar as it concedes the value of the NREG type of social programmes, can be of some long term significance if backed up by popular mobilisation not just verbally but by strong and honest implementation in at least the States ruled by the Left.

Basic Thrust and Rationale of the Budget

In the light of the above, one can try to make sense of the objectives, rationale, strategic and tactical line, and the real content of the Budget 2009-10. In its essential thrust the Budget expressly tries to address the abrupt termination of what was described by the previous FM as the absorbing and exciting Indian growth story. Obviously it is found convenient to maintain that the most prominent manner in which the effects of the current global economic, financial, social and systemic crisis have reached the Indian shores is by way of forcing a slowdown of the Indian economy’s hyper growth. It is not recognised that the poor, whether countries or the common people in a country, are faced with exclusion (a fate worse than being the victims of a fleeting recession) even when the market forces-led status quo growth marches ahead vigorously and the going gets real hard for these marginally included sections when the drivers of the growth engine suffer bouts of recessionary contraction. Hence the tailor-made task for any manager of a liberalised economy is to restore the high growth rate era at the earliest, say, from the current target of about seven per cent quickly to the recent nine per cent trajectory as the salvation of India’s age-old economic problems. This is also considered by the people in the Establishment a dire necessity for the so-called unstoppable march of India to a great power status. In the first Budget after the 2009 election, apart from reconfirming the basic thrust, it is the FM who appropriately reminded that the mandate for “inclusive growth and equitable development” should also be recalled.

Given such intellectual and ideological baggage, reflecting probably concrete power equations and political tactical compulsions of the day, it is obvious that additional current spending, both public and private, to stimulate the economy and revive market sentiment for a robust boost to investment are zeroed in by the managers of the economy as the current task at hand. The tasks seem relatively simple on the supply side as we have scaled new heights of about 37-38 per cent rate of domestic savings and about 40 per cent rate of investment, of course with the foreign capital chipping in to bridge the small but critical gap and the massive linkages with the economies of the rest of the world are taken to be on balance a factor facilitating the drive for speedy growth.

Given the linkages, both positive and negative, flowing from the surprisingly rapid and large scale integration of the Indian economy to the world economy (read the G-8 economies), mainly in matters of trade and finance, the compulsions flowing from the current shrinking faced by the major world economies is to look inwards for the much-needed demand-push and stimulus.

Given the surfeit of money incomes and wealth in the hands of the rich, tax concessions and easy money have already been attempted to revive their demand for the goodies. Officially so much is openly admitted as well. Hence the need to push up total domestic spending and revive the confidence of the domestic as well as foreign investors in the great Indian growth saga formed a major part of the logic underlying the Budget this year. The pity is that the absolute sum of seven digit public spending for the first time so mesmerised the policy-makers that the fact of it being just about 20 per cent share in GDP and the need and feasibility of a higher level were not factored in so as to go in for an even bolder spending thrust, something that would have killed so many birds with one stone.

To understand this one has to fall back on the compulsions arising from riding two boats at the same time: the growth engine led by the large private capital must not be disturbed (read the quotation from Chanakya carefully) and at the same time the social spending too should propagate a clear political message that inclusive growth also remains on the agenda. Of course, the trillion rupee question regarding the actual relative priorities would be kept shrouded in mystery alongside a plethora of verbiage depending on the audience.

As a part of the process of keeping the market in good humour (its strictly narrow connotation as organised big capital need not be spelt out), the task is cut out: do whatever is necessary to maintain the bottom-line of the exporters, corporate entities and the big stock market players (as the reserves of forex so built up are necessary for financing big import binge) a lot of whose paper wealth has lately evaporated into thin air. It is clear that except public spending, especially putting some money in the hands of the poor, hardly any other means can create the illusion that by protecting the profits after tax the fiscal mechanism is indeed helping to protect the workers’ livelihood as well.

Of course, one does not mention inflation and the way it continues to erode the meagre and uncertain money incomes of the common people who do not have the benefit of any indexation as they do not have any regular income that can be indexed and protected against inflation. The official understanding is that inflation is no longer a matter of concern. The Budget shows little concern about it. Obviously it is not to the policy-makers who fix their macroeconomic balance on the basis of a particular reading of a particularly designed wholesale price index. Of course, the consumer prices are eroding the purchasing power of the rupee but what matters according to the globalisation-marketisation logic are the world prices for rational decision-making! A serious omission in the Budget is the issue of non-episodic steadily ongoing inflation. It makes even the real component of the public spending programmes uncertain and pushes up the cost of public projects and thus slows down implementation.

Also there seems to be inadequate, if any, realisation that ultimately without coming back to the home market as the basic fulcrum there is hardly any real possibility to successfully carry out any anti-cyclical policies. Probably the pro-poor measures are a limited corrective in this respect. For this purpose pump priming by means of big-ticket public spending on welfare and entitlement programmes for the masses is the only way. To the extent the Budget for the year has shown a live concern at least marked by a spate of announcements that punctuated the Budget speech (a detailed arithmetic has to be undertaken to see the real connotation of these moves), it is a step that delivers a clear political message and has to be sustained by ground-level action by enhancing the relative significance of these measures and the method of their financing as any shifting of the burden of additional finances on to the common people would make such steps an illusion. The rebound of these income injections on business turnover and profits should enlighten the business classes to subdue their opposition to such shifts in the pattern of public spending. After all, the slowdown has been in India prior to the global slowdown, especially in the manufacturing sector even in the face of about 30 per cent investment growth in this sector (on top of the dismal performance of the farm sector witnessed over a long stretch of time). Thus the global slowdown came at a time when the inner contradictions flowing from the neglect of the home market, qualitative and structural aspects of the growth process capable of responding to the indigenous conditions and compulsions, including welling up and periodic bursting out of pent-up social tensions were already making their presence felt.

In brief, the move towards a somewhat more liberal spending by the government on social programmes, not very sizeable compared to the customary spending on infrastructure for the elites and rich men’s other public and quasi-public goods and services, seems capable of combining in the short term the pursuit of the narrow economic agenda with a little broader social agenda. If this is what has been done, one may say that a process of reconciling conflicting pulls and pressures has been initiated in a manner that is somewhat new for the regimes we have been seeing for quite some time now.

However, one cannot ignore the trends of a different kind running parallel to the relatively more open-fisted public spending for the common people approach. Obviously with the stated and relatively fixed policy preferences and processes of visible open mutual consultations with the big corporate entities and their lobby organisations on an ongoing basis, the G-20 postures and substance and the imprecise and vague references to inclusive growth (reminiscent of the rhetoric of the earlier period with many fancy words that accompanied disequalising, eco-hostile, dependence-fostering growth) it would have been a miracle that the Verdict 2009 can go so far as to make the powers-that-be downgrade the salience assigned to the private capital both local and alien. Clearly all that seemed feasible and consistent with the above basic commitment has been largely attempted. Hence it gives us a somewhat revamped model that tries to operationally reconcile the growth, globalisation, corporatisation and financialisation agenda with the relatively more tangible and visible efforts to take the poor masses partly and irregularly on board. This is being done not by putting an end to the essentially exclusionary character and thrusts of growth as the first and foremost concern both as an end in itself and also as the primary means to maintain social balance and harmony without infringing on the tolerance limits of the dominant system. It partially (pun intended) attempts, as the Budget proposals and the promises to do wonderful things in the next five to ten years show, to blunt the excessively troublesome and atrociously visible and hurtful effects of large scale and endemic exclusion. But the process of incorporating the informals even within the formal sector has been going on even outside the state sector. The state actions too would go to facilitate the process as higher education expansion gets a boost in the Budget and some partial, discretionary and not easily accessible social security and assistance measures have been initiated. The point is that such measures and their high-voltage propaganda for reaping electoral dividend have their own logic of making ever growing and really effective efforts in these making virtue-of-a-necessity kind of approaches.

True, almost three times higher government borrowing would impinge on the corporate susceptibilities and some noise against these measures in the name of sacrosanct fiscal prudence is already quite loud. Thus public spending comes up as an option, but hang on, if it goes too far it would amount to stepping on the toes of the corporates, elbowing them out both from investment opportunities and state-supported and facilitated access to social, financial and real resources, and the state would have to face a conflict of a critical nature. The corporate sector with about eight lakh companies and with only half of them filing corporate tax returns, despite its massive and disproportionately large control over the resources and output in the Indian economy, is a net deficit sector in matters of financing its investments by internal resources. Hence only a limited expansion of public spending, certainly avoiding productive capital formation in order not to shrink the space available potentially to the private corporates but concentrate mostly on current outlays seems to be able to reconcile two conflicting pulls.

This seems to have provided the budgeting process an excellent opportunity to reconcile the political and economic compulsions. Hence the role of social spending, mostly in the name of the poor and the rural areas for a variety of income transfer and generation purposes, for extending certain critical services, assistance and security, infrastructure facilities and so on, with some visible measures for the urban slum dwellers, necessarily projecting strong rural-urban linkages and continuum and the large absolute size of such people living in miserable conditions but sustaining the formal economy as well (the formal sector creates mostly informal work opportunities in India). This can be paraded as the contribution towards inclusiveness of development. That “growth in order to be sustained must be shared” seems to have been interpreted as giving the crumbs to the needy masses, while the royal feast goes on! The violence done to the word reforms is not the only instance of the use of linguistics for narrow partisan ends! Inclusive development too has been vulgarised as disbursing doles on a discretionary basis and not as a matter of enforceable right.

Be that as it may, the Budget model has made some visibly large contributions to various social and rural programmes. It is true in most cases these allocations remain top-down by means of centrally-sponsored one-cap-fits-all kind of programmes. They have not tried to replicate the rights-based self-selection or entitlement model of the NREGA. Of course, the real size and proportion of these programmatic allocations have to be judged not necessarily vis-à-vis the GDP, but in terms of per rural person or per poor person allocation either daily or weekly as the case may be in order to appreciate their real meaning and likely impact. One would have in any case to wait for a detailed scrutiny of the fine print of the Budget papers to judge the usefulness or the real meaning or otherwise of these programmes that generally spread resources too thinly over too many things. But the issue of riding two boats simultaneously (not always a backfiring exercise in a complex polity and economy), with the boats pulling in different directions and are powered differently is not necessarily a foredoomed exercise; it depends on the skills, honesty and commitment of the sailors and the pressures and partisanship exercised by the passengers who board the boats.

At the end the obvious must be acknowlwdged: because of such essentially token social spending, translated into action through a complex and not necessarily friendly bureaucratic machinery, along with the main thrust of the overall economic and social mechanism that is patently exclusionary, at the time when the then Finance Minister would rise to present the next Budget, it would be too naive to expect that she or he would be able to claim that a real dent has been made in the degree and vicious forms of exclusion entrenched in our midst. If the distress is to some extent lowered, the beginnings made this fiscal may be considered worth carrying forward by adding some some additional teeth and punch to them.

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