Union Budget: Jaitley’s caution has unwittingly paid off

  • Swapan Dasgupta
  • Updated: Mar 02, 2016 21:47 IST
For the Narendra Modi government rapidly approaching its halfway mark, the political pressures have been intense. After trying to check inflation in his first two Budgets, analysts find a clear stamp of Modi on Arun Jaitley’s 2016 Budget. (PTI File)

It is not merely the state of the economy and the state of government finances that determine the shape of the Union Budget. In democratic countries, the Budget also has a definite political context. Nor is the overweight of political compulsions limited to the last two Budgets of a five-year term. With a clutch of crucial assembly elections scheduled each calendar year, every government has to be unendingly mindful of the need to keep different geographical regions and social groupings — if not entirely happy — reasonably contended. With electoral competition becoming intense — no incumbent can take re-election for granted — there is now a systemic resistance to heralding radical change that also carries a corresponding political risk.

For the Narendra Modi government rapidly approaching its halfway mark, the political pressures have been intense. Apart from the electoral setbacks in Delhi and Bihar, it has been hamstrung by the ‘irrational exuberance’ that greeted its outright victory in the 2014 general election. The slogan of ‘achhe din’ may have been a clever copywriter’s brainwave — what Amit Shah unwisely called ‘jumla’ — but it set exacting standards by which the regime is judged.

The inordinately high expectations from the government — what former Prime Minister Manmohan Singh, in another context, debunked as a belief in the ‘magic wand’ — have been further complicated by the nature of the 2014 verdict. The popular faith in the leadership of Modi also incorporated a varied set of expectations. The cultural agenda, now at the centre of acrimony, was an understated part of the Modi that people voted for. Equally, the image of Modi as an Indian Margaret Thatcher who would break the statist consensus was confined to a very small group, albeit an influential one. Overall, the expectation was that a no-nonsense leadership style would ensure maximum happiness at the minimum cost — an unreal belief that was nevertheless both amorphous and real.

On his part, Modi didn’t misread the verdict. Much more than his colleagues, he has been clear in his mind that the dizzying expectations would have to be addressed by focusing relentlessly on economic growth. He has also been clear that change must come in digestible doses — a reason why he retreated from the Land Acquisition Bill, outsourced labour reforms to the states and avoided the likely backlash that would result from indiscriminate privatisation. Contrary to the caricature, Modi’s inclinations are more managerial than ideological, although he doesn’t mind a few risks born out of interesting ideas. He is an ardent nationalist. But the Swami Vivekananda-inspired nationalism he is committed to is not bound in economic certitudes.

Union finance minister Arun Jaitley’s first two Budgets were focused on two principal objectives: Checking inflation through controlling the fiscal deficit and restoring the confidence of business in India. The first objective has been reasonably well addressed. However, in the course of reviving investment and creating jobs for the 12 million or so new entrants to the job market each year, a path the prime minister aggressively pursued through his Make in India, Skill India, improving the ease of doing business and economy-centric foreign policy, there were unintended consequences.

The most damaging of these, in political terms at least, was the ‘suit-boot sarkar’ charge that coincided with a large-scale agrarian crisis. No government can afford to be portrayed as uncaring in a poor country and the principal focus of Jaitley’s current Budget was to signal a sharp tilt in favour of rural spending. However, while there is a welfare dimension to this expenditure — large outlay for the MGNREGA, the cooking gas subsidy and the hospitalisation scheme — the focus has been to create a policy environment that would enhance rural incomes. This rural bias has also ensured that the criticism of the Budget has been fairly muted. Indeed, much more than in 2014 and 2015, the BJP backbenchers have been enthused. They in particular know the importance of pandering to the section that, despite the support for the BJP in 2014, is not yet an assured support base.

It is interesting that at the same time the Budget has not earned an unqualified endorsement of corporate India. Although Jaitley may secure belated praise if his commitment to fiscal consolidation forces the Reserve Bank of India to lower interest rates, there is disquiet among a section of corporates over the squeeze by banks. A section of Indian corporates are distinctly unhappy over the abrupt termination of the cronyism that was a hallmark of Congress-led governments. And while some corporates may take full advantage of the lavish spending on infrastructure promised in the Budget, the over-reliance on State expenditure will inevitably invite charges of betrayal from the economic Right.

A less noticed part of the Budget is the incentives being offered to small entrepreneurs and start-ups. The government appears to be combining old-fashioned Keynesianism with the creation of new entrepreneurs whose business culture is markedly different from the more established corporates. This is a politically risky approach. But with the Congress lurching sharply to the Left, there appears to be a calculation in government circles that old business may not secure the necessary political patronage to force Modi to accommodate its indulgences. The government may yet circumvent the unspoken investment ‘strike’ of established corporates if increasing numbers of foreign investors are attracted to India for a variety of reasons.

For the government, the biggest imponderable is the state of the global economy — something it didn’t anticipate. India has been affected by the global turbulence, but not to the extent of more open economies. Paradoxically, the Modi government has managed to respond with greater flexibility to the political challenges of a global downturn, precisely because Jaitley had earlier shunned the temptation to usher in ‘big bang’ reforms. Caution has unwittingly paid off.

Swapan Dasgupta is a political commentator

The views expressed are personal

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