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Decoding the politics behind first budget of Modi 2.0 | Analysis

Finance minister Nirmala Sitharaman adopted a dual track approach in the Budget. She stuck to welfare and is aiming for growth. Both need to work for the party’s political base to stick

analysis Updated: Jul 05, 2019 21:26 IST
Prashant Jha
Prashant Jha
Hindustan Times
Budget 2019,Union Budget 2019,Budget
Union finance minister Nirmala Sitharaman presents the Union Budget, July 6, 2019(ANI)

When Narendra Modi was campaigning for the 2019 elections, he knew the Bharatiya Janata Party (BJP) would have to replicate the multi-class coalition which had propelled it to power five years ago. To achieve this, he had one big thing going for him, and one potential pitfall that could derail the prospects of re-election.

The achievement was in the realm of welfare delivery. There is now adequate evidence from the ground that the government’s push on rural housing, gas cylinders, toilet construction — all through improved delivery mechanisms — paid rich dividends. It created a new category of voters: the - beneficiaries of schemes. The BJP’s base among India’s poorer voters, across caste lines and regions, swelled. From aspirational districts to reserved constituencies for Dalits and tribals, the party swept it all.

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But the challenge was in the realm of the economy. In 2014, the middle class and lower middle class in urban centres and smaller towns, the educated and aspirational young voters seeking better opportunities had voted for the BJP in substantial numbers. The government had been unable to meet their expectations. Growth had slowed. Manufacturing did not pick up as expected. Employment dipped. Incomes had not grown. The corporate sector felt the Modi of Delhi was distinct from the Modi of Gandhinagar who embraced them unapologetically. But a mix of factors — Modi’s personal charisma; the lack of a credible opposition; nationalism; and the sense among this large segment of voters, including those voting for the first time, that even if the economy was not in good shape, only Modi had the ability to restore it — meant that this (admittedly heterogeneous) class of voters stayed with the BJP for a second time. It may have been unbridled enthusiasm that motivated them in 2014; in 2019, the quantum of votes was greater, but it was accompanied with caution.

When Nirmala Sitharaman stood up to present her budget on Friday, her core political challenge was in maintaining precisely this multi-class alliance.

To do so, Sitharaman stuck to what has worked. Her statement that the village, the poor, and the farmer remain at the centre of government’s attention was a political signal. Her declaration that every household will have a gas cylinder and electricity connection by 2022; reiteration of the PM’s promise of bringing water to every household by 2024; push for rural roads — seen along with the expansion of the PM Kisan scheme soon after the government was elected — is aimed at consolidating the support of the more marginalised sections of society.

But this was not going to be enough. The Economic Survey had already pointed out the need for private investment as a key driver for growth, export, and demand. All these were essential to stimulate the economy, which, in turn, would generate the jobs that India’s younger demographic is so desperately seeking. Sitharaman first recognised the contribution of the private sector. And then, through a slew of policy devices — tinkering with regulations for Foreign Direct Investment in key sectors, lowering of corporate taxes, infrastructure push, easing access to capital, creating a more friendly tax regime for start-ups, recapitalisation of banks — she hoped to unleash growth. Whether this will be enough is questionable, for the capacity of India’s debt-ridden private sector to invest remains weak.

The government, however, is betting on the fact that this higher growth strategy will pay off. If it does, Sitharaman hopes the middle class, flush with new opportunities, will, a little reluctantly and unhappily, but without much anger, absorb the extra cess it is being made to pay for fuel or live with the fact that it has not got tax concessions this time around. The higher surcharge on the super-rich is a win-win strategy for the government. It will help earn higher revenues, and it will have little political cost, for the segment of taxpayers earning above ₹2 crore may be influential but are demographically insignificant.

Any budget is laced with many assumptions. Will the welfare programmes of Modi’s second government be sufficient to sustain and expand BJP’s base among the poor, especially if rural incomes do not grow? Will the budget announcements really be enough to drive investment, in the absence of which the jobs crisis will get more acute and the anger among younger voters grow? The answers will appear only over time. But it is clear that the future of the BJP’s success — and continued hegemony — lies in precisely these questions. The budget’s political success, or failure, will depend on its ability to sustain Modi’s carefully crafted alliance.

For full budget coverage log on to livemint.com

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First Published: Jul 05, 2019 16:48 IST