Skip to main content

Politics trumps ideology (Hindu.)

The macroeconomic credentials of the Budget are quite impressive. The highlight is a greater than 25% increase in capital spending and a substantial increase in the transfer to the States

Stating that the Budget represented the philosophy of his government to ‘Transform, Energise and Clean’ India, the Finance Minister has presented a Budget that is in many ways quite impressive. As the details were not out even on the Finance Ministry’s website at the time of writing, it is not possible to evaluate it fully in the sense of being able to assess whether the Minister’s claims on revenue expectation, and therefore the deficit, are credible. However, the budgetary allocations are intelligent and do add up to a reasonable vision of what the economy needs at the moment. In fact, after having presented three quite lacklustre Budgets in a row Mr. Jaitley appears to have learned on the job. His presentation was businesslike and knowledgeable and specific about the interventions that he had in mind. It is to be hoped that we are seeing the beginning of a competition among our political parties to present meaningful Budgets for the people of India, Budgets without literary embellishment and responsible in their approach.

Despite the reasonableness of many of the allocations and some of the tax measures, however, the Finance Minister started the Budget speech with claims that are either untenable or irrelevant. There is excessive credit taken for the current macroeconomic stability in terms of a low balance-of-payments deficit and inflation, both of which reflect the slowing of growth in India. Now the trope, often adopted by the Prime Minister himself, that India is the sole “bright spot” in the world economy is beside the point. Moreover, the foreign exchange reserves that the Minister alluded to were almost as high even when this government had taken over in May 2014. Surprisingly for a government that takes pride in India’s cultural autonomy, there was reference to the plaudits that management of the Indian economy had received from the World Bank, the United Nations Development Programme and the World Economic Forum. But most noticeable was his laboured effort to rationalise the demonetisation. Spoken of as a measure “to honour the honest”, there was little reference to the economic uncertainty that it has caused. The benefits, it was blithely claimed, would come in the train of events, with no specifics whatsoever being outlined.

Impressive surprises


Whatever the opening rhetoric on the performance of the Modi government so far, the macroeconomic credentials of the Budget are quite impressive, however. The highlight is a greater than 25% increase in capital spending and a substantial increase in the transfer to the States. These indicate the need to stimulate the economy and to cultivate a more healthy federal relationship, respectively. It is with respect to the increased capital expenditure, though, that the Minister has shown himself to be quite statesmanlike. It may be noted that the increase in capital expenditure in his last Budget was less than 4%. So we have a quantum leap here. Clearly, the dip in the rate of growth even before the quarter in which the demonetisation was implemented has served to energise this government. It seems there is nothing like a slowing economy to concentrate the mind of a political party in a democracy! But the politics aside, the increase in capital expenditure is impressive and can indeed contribute to an improvement in the quality of life in India.

It is with respect to fiscal consolidation that there has been a pleasant surprise. Despite the hectoring by professional economists and his political rivals to stick to the path of fiscal consolidation aimed at capping the fiscal deficit at 3% of GDP, Mr. Jaitley has shown nerve to step on the brake and glide it down to 3.2% for now. While the exact figure may be a point of discussion, it is to be hoped that the fixation with a fixed target for the fiscal deficit is now a thing of the past. The Budget is to be balanced over the cycle, i.e., expanded as the economy slows and contracted as it quickens, the rest is merely ideology.

The rural outreach


But it is not as if the Minister can walk away with only the bouquets as far as fiscal management is concerned. There could have been a greater effort to trim the revenue deficit; at least a statement of the intention of eliminating it altogether in the future. A revenue deficit implies that we are borrowing to consume. It is not surprising that there has been little movement in this direction, for the Modi government is no different from the rest of the field when it comes to subsidies. But it has done the right thing in raising the allocation for the Mahatma Gandhi National Rural Employment Scheme. The allocation of ₹48,000 crore for this employment guarantee scheme is the highest in the history of this scheme. Now, only the implementation remains. It is important to ensure that beneficiaries receive their full payment on time and that the expenditure is targeted on asset-building to the extent feasible.

Away from the fiscal balances, the Budget does have a clear orientation. It is towards the rural population, for which the allocation of ₹1,87,223 crore is higher by 24%. Specifically, the allocation for rural sanitation is higher by 18% and there is the impressive target of achieving 100% electrification by 2018. The benefits of the latter would go disproportionately to rural India, and this is overdue. There are also incentive schemes for the attainment of open-defection-free villages in the form of the supply of arsenic- and fluoride-free piped water to them. Panchayati Raj institutions are to receive assistance to raise their level of human resource endowment and a special fund for irrigation has been created, to be operated by NABARD (National Bank for Agriculture and Rural Development). Two claims on what the Budget does for rural India, however, stand out as either overambitious or vague. It is suggested that agriculture will continue to grow by 4.1%. This induces incredulousness as such a rate has not been consistently attained in the country. Secondly, there is a plan to lift 50,000 gram panchayats out of poverty. We are yet to be told how these will be chosen and, more to the point, given an idea of the plan.

While the focus on rural India is welcome, it could have been politically driven and may have resulted in some loss of clarity on what is salient. While the largest number of Indians do reside in the rural areas, agriculture contributes to less than 20% of the national income. One cannot help but wonder what the government, through this Budget, intends for the remaining 80%. After all, it is not so long ago that the government’s main programme had been ‘Make in India’, a plan to expand manufacturing, and one of Mr. Modi’s first journeys upon election had been to the lair of the global CEO in New York. Manufacturing growth is important as it has a high elasticity of employment generation and the poverty rate is higher in urban India. Could it be that the government smartly sensed that the technocratic case for a high economic multiplier in fiscal spending is also aligned with the biggest political ‘bang for the buck’? Politics trumps ideology in this Budget, and, for a change, that is welcome.

Comments

Popular posts from this blog

Cloud seeding

Demonstrating the function of the flare rack that carries silver iodide for cloud-seeding through an aircraft. 
Water is essential for life on the earth. Precipitation from the skies is the only source for it. India and the rest of Asia are dependent on the monsoons for rains. While the South West Monsoon is the main source for India as a whole, Tamil Nadu and coastal areas of South Andhra Pradesh get the benefit of the North East Monsoon, which is just a less dependable beat on the reversal of the South West Monsoon winds.

SC asks Centre to strike a balance on Rohingya issue (.hindu)

Supreme Court orally indicates that the government should not deport Rohingya “now” as the Centre prevails over it to not record any such views in its formal order, citing “international ramifications”.

The Supreme Court on Friday came close to ordering the government not to deport the Rohingya.

It finally settled on merely observing that a balance should be struck between humanitarian concern for the community and the country's national security and economic interests.

The court was hearing a bunch of petitions, one filed by persons within the Rohingya community, against a proposed move to deport over 40,000 Rohingya refugees. A three-judge Bench, led by Chief Justice of India Dipak Misra, began by orally indicating that the government should not deport Rohingya “now”, but the government prevailed on the court to not pass any formal order, citing “international ramifications”. With this, the status quo continues even though the court gave the community liberty to approach it in …

India’s criminal wastage: over 10 million works under MGNREGA incomplete or abandoned (hindu)

In the last three and half years, the rate of work completion under the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) has drastically declined, leading to wastage of public money and leaving villages more prone to drought. This could also be a reason for people moving out of the programme.

At a time when more than one-third of India’s districts are reeling under a drought-like situation due to deficit rainfall, here comes another bad news. The works started under the MGNREGA—close to 80 per cent related to water conservation, irrigation and land development—are increasingly not being completed or in practice, abandoned.

Going by the data (as on October 12) in the Ministry of Rural Development’s website, which tracks progress of MGNREGA through a comprehensive MIS, 10.4 million works have not been completed since April 2014. In the last three and half years, 39.7 million works were started under the programme. Going by the stipulation under the programme, close to 7…