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Union Budget: A lost opportunity

With its historic mandate, and ambitious targets, the government could have embarked on structural reforms. But Narendra Modi has yet again opted for an incrementalist approach.

columns Updated: Jul 05, 2019 22:03 IST
Yamini Aiyar
Yamini Aiyar
The critical issues facing agriculture are well-known. The Union Budget fails to address them(Hindustan Times)

This could have been a grand opportunity. Against the backdrop of a resounding mandate and an economy in urgent need of revival if it is to meet the aspiration of a new India boasting of a $5-trillion economy, this was the moment for the Narendra Modi government to unveil bold, radical reforms and offer solutions to the deep structural fault lines in the Indian economy. But Modi is known to be an incrementalist rather than a radical reformist. So perhaps bold ideas was expecting too much of his government’s first Budget in the second term. However, the challenges confronting the economy — growth slowdown, persistent agrarian distress and high unemployment — are serious and addressing them requires a clear policy vision and direction, including some breaks from the adhocism of the past. It is in the failure to offer this direction that Friday’s budget disappoints.

At best, this budget can be viewed as a reiteration of commitments made in the interim budget in February. Unlike the last few budgets in Modi 1.0, this budget steered clear of any grand and expansive expenditure announcements, particularly on welfare. No new schemes, except for reiterating the focus on piped water supply under the Jal Jeevan Mission, were announced. And a close look at scheme allocations, across ministries and schemes, indicates little change from the interim budget. Even the Jal Jeevan Mission did not see a significant increase in allocation from its previous avatar, the National Drinking Water Programme. In her budget speech, the finance minister spoke of prioritising solid and liquid waste management, a logical but expensive next step from the Swachh Bharat Mission’s (SBM) focus on toilet construction. However, allocations did not increase. The interim budget reduced SBM funds by 32% from Rs 14,478 crore (2018-19 revised estimates) to Rs 10,000 crore. Current allocations see no change and stand at Rs 9,994 crore. Curiously, many flagship welfare schemes like Ayushman Bharat and PM-Kisan did not find mention in the Budget speech. And allocations for Ayushman Bharat remain low given its stated target.

Given the state of the economy, and the large financial commitment already made under the PM-Kisan, that the government resisted any new major announcements for welfare spending is sensible. Importantly, from the perspective of political messaging, it shows continuity in focus. Convinced of the critical role that welfare schemes of Modi 1.0 played in this government’s resounding electoral victory, for the moment, Modi 2.0 is steering the course it set for itself in its first term and signaling the intent to complete unfinished business. In her speech, the finance minister reiterated several stated targets and commitments around water, electricity, gas connections (specifically for those willing to take a connection!) and rural roads.

While this might be smart politics, it does raise the question of the governments’ appetite for fundamental reforms. It needed to address deep seated structural failures in the rural economy especially in the context of contracting farm incomes. The absence of a clear vision for the rural economy and associated reform paths, despite the reiteration of multiple schemes and targets, was conspicuous in its absence and will certainly cost the economy and perhaps in the long run, prove a political misstep. The one sector where this was most visible is in the Budget’s response to agriculture.

While acknowledging its importance to the rural economy, the menu of solutions — increased investment in agriculture, setting up farmer producer organisations, e-NAM – appear piecemeal at best and fail to offer a broad vision of how the government seeks to ensure, to quote the finance minister, “ease of doing business” and “ease of living” to India’s farmers. The critical issues facing India’s agriculture are well known — the regressive subsidy regime that has distorted agricultural markets, reduced incentives for crop diversification and caused significant environmental damage; badly regulated markets; weak procurement infrastructure – and it is these that collectively constrain the farmers ability to “do business”.

These constraints to the “ease of doing business” in the agricultural market place cannot simply be addressed by, to quote anthropologist Mekhala Krishnamurthy, “going to the dashboard”, through schemes like e-NAM. There is no getting away from addressing the fundamental, entrenched failures in the current policy regime. And the failure of this budget to use its historic mandate to, at minimum, unveil a policy vision to move toward these much-needed reforms is a lost opportunity. A similar slow approach is visible in the commitment to improve infrastructure which appears, rightly as the centrepiece of the strategy to revive growth. The need to improve roads, ports and electricity is undoubtedly critical. But again doing this right will require tackling difficult issues like electricity tariff regimes. In her speech, the finance minister recognises this but offers little in terms how the government plans to tackle these challenges.

Finally, in a break from the past, the finance minister made a somewhat unusual choice in steering clear of making any mention on budgetary allocations and proposed expenditures. In fact, even the mention of the much-awaited fiscal deficit target was made at the end of her nearly two-hour-long speech and, that too, as an after thought. Ordinarily, this departure would be welcome. Budget speeches are political signals and in many years of following budget speeches, I have found finance ministers making the convenient choice of presenting numbers in the speech that don’t necessarily add up on careful examination. But against the backdrop of the many questions that are being asked of the fiscal math of the previous governments, particularly related to Goods and Services Tax collections and off budget borrowing and its implications, the new government’s first Budget was an opportunity to restore credibility in the government’s fiscal math. In these circumstances, the numbers ought to have made the headlines.

In summary, despite a resounding mandate, this budget has made clear that Modi 2.0 is going to steer the familiar course and reforms will be slow and incremental. This is an opportunity lost. It may well cause a significant hurdle in the path to achieving the goal of a $5-trillion economy.

Yamini Aiyar is president and chief executive, Centre for Policy Research

The views expressed are personal

First Published: Jul 05, 2019 22:03 IST