Mainstream, VOL LII No 29, July 12, 2014
Union Budget 2014-15: A Quick Overview and Some Questions
Monday 14 July 2014, by
The Government in India seems to be on the cusp of a watershed in many different dimensions. This seems to be so not simply on account of a new government assuming office but on account of the attempts, fairly loud ones at that, to project a big change and a good degree of shared assumption of something different from what we have become used to in the course of many changes of government we have witnessed so far. Whether the same holds good for the process of governance in its many aspects, more particularly in terms of a policy revamp of a qualitative kind, may not be clear so far, but if the present Budget is any indication, the prospects seem dim.
This is notwithstanding the tall claims of this kind that are so thickly in the air as a sort of follow-up of the noisy election campaign, that is, a campaign which looked so much of a lost campaign as far as there was hardly any opponent or contender who could be taken seriously. Also there was hardly any alternative course of policy that was projected before the electorate. Maybe one says so post facto without much hesitation but even the doubting entities had at least given up the main opponent as hardly being there. Clearly the change of government following the 16th general elections is marked by the special character of the election campaign and the unfolding of the political drama. Its impact or faint reverberations would continue to echo for some time and may cloud the policy debates.
No doubt the departure of the UPA-II has been quite unceremonious and well-deserved. It is difficult to recall any more incompetent and discredited ruling outfit in our post-indepen-dence cycle of changes of government except some deftly manoeuvred nine-day wonders which amounted to nothing short of aberrations of our politics driven by no-holds-barred personal ambitions of some maverick politicians.
Why we mention these well-known and apparently irrelevant views at this juncture as a kind of preface to this short and quick overview of the NDA-III Government’s first Budget exercise—practically less than a full Budget, irrespective of all the usual trappings which accompany a Budget—is because the political strength of the regime may produce a denouement, though for that only time would tell. Hence the attempt to read some directly irrelevant-sounding hidden messages.
The NDA-III Government succeeded in winning a verdict the like of which had occurred after quite a long period. If one cares to read the political developments around and during this period, they seem poised to hold, to an unusual extent, some significant lessons for the winners with implications for everyone. However, much would depend on the manner in which the outcome is accepted, interpreted and appropriate lessons drawn from it. Clearly the stake-holders are not confined to the ruling combination of parties, persons and sundry groups. One hoped that the Union Budget may turn out to be a prominent occasion to show the direction, speed and élan of the present government. Maybe these are hidden or are not clear, in the process of shaping up, but one is not able to take a clue regarding them simply or mainly on the basis of the present Budget, unless the entire process, persona, pressure groups, technical and political players of the exercise and their modus operandi become clear in the course of time or by the explanations and justifications provided by the persons directly involved.
People had some clues regarding who was doing what and how and under what kind of framework so far for many years. Maybe it was to an extent known to the South Block-watchers, but clearly the locus has shifted and the insiders and sideline-wallas are yet to speak or identify themselves. Hence it seems that even a kind of a tentative exercise, perhaps by way of testing the ground, would have to wait to show who did what and whether the old worms had withdrawn or reappeared.
After all, is it not said real powers rarely change so quickly, so completely and so much without being noticed as with the swearing-in of a new dispensation? But the way many pundits are going about assessing the Budget in so many of its diverse aspects, positively, negatively or in some sort of unclear manner, one hopes before long a better informed and maybe nuanced view too would start making itself known.
Since beyond a point not much can be said on the basis of the written or spoken words, it seems a more clear characterisation may have to wait for some more time and some more follow-up policy announcements in various fields related to the Budget exercise or when some difficult situation or dilemma presents itself to the policy-makers.
One fact that prevents one from a clear perception is the size of the Budget spending and the inability to raise resources to any meaningful extent. Both are so much a follow-up of the preceding half of the year’s exercise and in line with a view which had a deep ideological commitment, reinforced by the corporate pink press campaign-style economic reporting, by some in a manner and terminology as though they are the real Noble Laureates in Economics! Hence for weeks the campaign went full blast to press for small public spending, making an absolute virtue of fiscal consolidation and adherence to a lawless law on Budget discipline. The agency function of the corporate sector was accepted and taken as a virtue in itself and, of course, without any alternative! There could not have been worse advice and the corporates lent full-throated support to it. In the process they sacrificed their immediate and medium-term advantage of getting a growing market derived from a bold and imaginative and honest public spending programme to push up the rate of public investment beyond what our corporate bosses would divert from their preferred tax haven channels or be able to attract investment by whatsoever means.
Their ability to attract investible funds from outside India, including from all kinds of financial markets and real estate markets all over the world, is neither pronounced nor very real, especially when the projects are such as can be considered examples of social enterprise. With self-imposed resource shortage, the state gave up any pretence of being a social state. The corporate flesh and blood super-bosses swim in their super-luxury real estates and have political financing as the most lucrative investment whereby they cultivate and nurture their cronies. And most critically of all is the new category reported in our National Income Accounts along with savings and investments, that is, the category called valuable. It is this which is becoming an undoing of our job growth and fair business practices as components of the black internal and externalised economy. They put as much as 2. 6 per cent of our GDP—that is something equal to the investment-savings gap in the national level which is normally met by foreign capital when our globalisation goes so much off the tangent as to exceed or even become double of our usual current account deficit of some two to three per cent of the GDP.
Thus even the basic commitments writ large on the political compass seem to have been ignored. Any understanding of the massive socio-political and regional commitments made by the campaigners pale into irrelevance in the face of a tax-GDP ratio pegged rigidly at about 10 per cent. The manner in which the public spending has been pegged at the current level and the exercise has been entrusted to an Expenditure Commission smacks so much of the practices perfected by the outgoing regime to stall and delay the challenges. The first year of so much conservative stance on public spending and investment to take up massive programmes of using our youth power prevents the regime from doing so much which would have built up a huge social capital for it, in addition to being good and great for everyone. It seems likely that the young would find it hard to prolong their waiting period, with all the attendant uncer-tainties, lost chances or pronged miseries—the waiting period for a just about decent job normally leads to welling up of frustrations. Just as the market fundamentalist stance on prices and assumed textbook style demand-supply play and hoped-for magic of market competition can hardly provide relief from the ravaging inflation, the token amounts allocated to a large number of attractive-sounding programmes would erode the people’s patience and if any hobby horse misadventure is taken up, some highly inflammatory situation may cause serious damage to the nation.
Either one can think in terms of the interest cost hike and paucity of finance owing to large public borrowings or one can launch massive education, social services drives in building up rural infrastructure facilities and so on and stop worrying about the size of public investment. Indian corporates have not been an adequate and humane source of livelihood and this is a task that only the public sector, or the informal, small, state-supported and enabled sectors only can do. As it is these segments are sustaining the Indian economy. Look at the National Accounts Statistics, so carefully and scientifically marshalled by our experts, who can do anyone proud in the world. So the lacklustre works in the Budget need big support and strengthening or the replay of the UPA cannot be ruled out, though so far one need not give up as the middle classes in the present regime can, though not necessarily, see the light from where it comes and not live in a make-believe world.
It is not ideology, surely no socialism in it—the most conservative governments the world over do such things and create a huge and stable market for their big capital. The capitalism of the kind we can afford to have in India has to be saved from the copycats always looking to this or that Western power and defunct economists.
One last point of some durable significance may provide a useful thought with which we may close. Thomas Piketty has done a classic (Capital in the 21st Century) from which one can draw creatively quite a few usable insights, provided one’s sociological imagination, human empathies, freedom from the corporate vested interests are well defined and active. Picketty has shown how really effective and well-to-do market economies spend about 50 per cent or so of their GDP through state-sponsored programmes. Those who, like in India, remained mired in under or about ten per cent state spending lose out on precious opportunities. We have in our Budget great flexibility by way of huge tax expenditure (of over Rs six lakh crores). Many permanent advisors to the government have advised on the need to give them up and even the DAC argues for it. But the political class has no commitment to this kind of state and social activism. The fiscal policy has to be endowed with fresh thinking and strong pro-people commitments if the UPA-kind of blind alleys are to be avoided. State activism cannot be democratic unless it is pro-people and follows a progressive fiscal policy both on public expenditure and public revenue sides.
A noted economist, the author was a Professor of Economic Development and Decentralised Planning holding the Malcolm S. Adiseshiah Chair at the Institute of Social Sciences, New Delhi.