How To Table A Big-bang Reformist Budget Disguised As A Populist One

 

How To Table A Big-bang Reformist Budget Disguised As A Populist One

 This is not the time for either/ or choices for Modi  and  his Government in the presentation of the Union Budget 2015. The politically correct stance now has, no doubt, been revised to  both; and then some. The earlier ‘bitter medicine’ proposals have been jettisoned in the cause of squashing the revival and glue of socialism, spreading  afresh across the parliamentary aisle.

Nevertheless, Budget 2015 promises to match deeds to the soaring words, the blueprint to the vision. It is crucial that it do so, in order to restore Narendra Modi’s credibility, dented by the upset loss to the upstart Arvind Kejriwal and his paper-hat clad flock, in the prestigious quasi-state of Delhi.

Will the Budget then signal a paradigm shift in the fate of this nation? I have little doubt that it will, but with the use of a little artifice. It will appear to be equal parts populist and reformist. This is the compulsion of the Indian DNA, the pull and drag of the old way over the new. The foreign observer expecting unequivocal free-market clarity must contend with the fact that we necessarily must be like this only. Our electorate demands it, and so does the hypocrisy that is embedded in our politics.

So Modi and Jaitley will present a budget that will frustrate the plans of Rahul Gandhi and Arvind Kejriwal. The BJP will out-welfare the welfarists, and usher in second generation reforms, under the cover of all the ensuing people’s delight.

Will it be expensive and dilatory, earning the ire of the international rating agencies? Not if they look closely at the net effect. It would have been worth their getting upset, if the fiscal deficit were to rise.

But, former RBI Governor Jalan’s suggestion to let that happen at the altar of growth, will be given the go by. There will be no rise in the fiscal deficit because of budget profligacy. For the first time, Plan expenditure may even be cut, much to the horror of the Left and the economic purist. But it won’t be cut so much that the welfarism is reduced. More sops will be actually added!

The real action on the reforms front, involving billions in foreign investment, will simply be outside the budget. Budget provisions will lay out the markers on the airstrip. It will be strongly manufacturing oriented towards defence and other SEZ led growth; financed by foreign investment. The budget will only wax eloquent on tax waivers, concessions and moratoriums to facilitate it. Will it mean losses to the exchequer? Yes, apparently, but what the nation loses with one hand it will make back along with bonuses, from the other.

Will the Budget satisfy all stakeholders clamouring for concessions and sops for their own special interest groups?  It seems highly unlikely. Sops and concessions, subsidies and grants are not the hallmark of good budgeting. And yet they will definitely be increased to benefit the poor. There will be increased allocations to health, education and electricity provision, the emphasis always being on poverty elimination rather than poverty alleviation.

Overall, the Government is widely expected to cut  its subsidy bill by some 20%  in fiscal 2015. Perhaps even more. But most of this will come, courtesy the diesel deregulation implemented early in the day, and continued low petroleum prices 50% below their peak.

Will the Government dare to trim other welfare programmes and build the promised rural infrastructure with the savings? No. Rural infrastructure and farmer-helping backbones will be built, using mostly private sector financing and overseas investment, but not at the expense of UPA origin welfare programmes. This Government is not looking for fresh rods for its back.

This will be a welfare cum incentivisation budget. The one to keep critics at  bay, and the other to attract productive investment and know-how from all over the world.

This is the major thrust of the Modi Government’s approach. It wants foreigners and other countries to invest massively in India. In this context, there will also be measures to revive the investment cycle to address the Indian end of joint ventures. And others to ease the burdens of the beleaguered construction industry, essential to achieve the Smart Cities vision and housing for all by 2022. But it won’t appear to be an ‘Industrialists Budget’ at all. The broad strokes will be so people-friendly, that it will make most sections applaud it.

Taxes in general, both individual and corporate, will be lowered. ‘Make In India’ will be facilitated at some considerable length. Exemption limits for salaried middle class people will be raised. GST will only come about in 2016, given more BJP wins in the states, particularly Bihar, because it is dependent on the big states adopting it, and they will, if they are BJP controlled. Others then will have to follow suit, or be left out of its benefits.

The Railway Budget, with its emphasis on huge bilateral funding of its signature projects would have already set the tone on the 26^th.  Welcome to Reforms 2.0.

For: NitiCentral

 (838 words)

February 22^nd 2015
Gautam Mukherjee