The market does not always know best. Last week, it completely lost the plot when faced with the unfamiliar. On Monday, Pranab Mukherjee presented the first Budget in decades which offers major social change, apart from the goody bag for business and the upper middle class that usually emerges from the finance minister’s briefcase. Every year, business leaders and investors cuddle sops and incentives like soft toys and candies, and burst into tears when they find duty hikes and deficits lurking among them. The rest of the population watches in bemused amusement, not really understanding what the fuss is all about. And not really caring, either, so long as something trickles down from the high table.
But Pranab Mukherjee has gone beyond the rubric and spoken directly to the poor, committing to employment, food security and urban regeneration in an attempt to secure inclusive growth. This deflected attention from customary goals like disinvestment and long-term fiscal policy. And right away the market, raised on the narrow-minded World Bank pap of fiscal prudence and deficit control, went into a tailspin.
It failed to appreciate that this was a political Budget, or that empowerment will improve manpower and purchasing power and ultimately benefit markets. On Monday, only Deepak Parekh of HDFC — who brought affordable housing to the middle class — pointed out that Dalal Street had not understood the Budget.
Middle India has grown rapidly on borrowings. Homes, cars and education — indeed, assets of every description — are financed by loans and plastic money. Industry is awash in credit. But the market has a problem if the State runs up a deficit to invest in the poor. In this century, there has been negligible improvement in India’s rankings on human development indices.
Now, the State has offered to be a little profligate on behalf of the poor. We should see an increase in their economic abilities, and thereby on the quality of the lives they lead. The government expects that the resulting growth will eventually offset the effects of its profligacy, and that significant social asset-building will happen in the meantime. This Budget represents a calculated risk, not an error of judgement as the market believes.
But it contains a deficiency, which the market has again missed. The focus of the National Rural Employment Guarantee Scheme (NREGS) remains on man-days of work generated, not on the assets generated thereby. From fairly early times, governments in India have used public infrastructure works as a means of employment guarantee in famine years. The tradition persisted into British times. The Buckingham Canal, once an economically valuable waterway running down the Coromandel coast, was connected with Chennai port in 1878 as a famine relief project for the people of Madras Presidency.
NREGS is trying to deliver value for money by introducing social audits. But social projects will still be viewed as wasteful handouts by the market unless its attention is drawn to the permanent assets they create. While auditing how many man-days NREGS generates, the government should also highlight its asset-building capacity. What is it adding to the highway grid, for instance, or the map of irrigated land? The market is a selfish beast, and it will otherwise not recognise that the common good can also be good for it.
Pratik Kanjilal is publisher of The Little Magazine
The views expressed by the author are personal