After a decade of Budget speeches full of extravagant promises that generally turned out to be false, along with grandiose and misleading claims about actual fiscal and economic performance, you would think we would all be inoculated against surprise at the presentation of the Union Budget by the Modi government. Yet Nirmala Sitharaman’s speech and a quick perusal of some of the key numbers does indeed surprise. Not because the government continues to refuse to take the essential measures that are necessary in the current macroeconomic context—as I said, we have grown to expect that. Rather, because the Modi government also seems to ignore the political realities it confronts, which presumably any central government interested in self-preservation would care about.
Despite the hype about GDP growth and the celebration of India by foreign private investors desperate for even more short-term returns from investments in India, the economic realities of the country are now only too well-known. The most critical problems are those of low and poor quality employment generation; precarious, insecure and near-subsistence livelihoods for informal workers, including farmers; an alarming state of undernutrition for much of the population, especially women and children in disadvantaged groups; and ballooning inequality. It is also well-known that the Modi government did not and does not intend to do very much about these. Its standard response to anything that reveals the ugly reality has been denial and shooting the messengers.
This attempt to control the narrative about the economy was only too evident in the Economic Survey released just before the Budget, which presented a fantasy economy bearing little resemblance to the one we have to deal with. When ugly facts like pervasive and increasing unemployment have to be confronted, denial and the production of “alternative data” that paint a much rosier picture have been the standard responses. The most recent reaction has been for the government to throw up its hands and declare that such issues have to be dealt with by the private sector and society at large, since the government cannot be expected to do everything (and in any case, it probably too busy trying to monitor and control critics and dissidents to do much else).
Even in the bizarre document that is this year’s Economic Survey, a few slivers of reality intruded. The Chief Economic Advisor’s Preface called upon “the Indian corporate sector, swimming in excess profits, to take its responsibility create jobs seriously” (emphasis added)—even as it denied any responsibility of the government to do so. The CEA also criticized the temptation in the financial sector (banking and insurance) “to pursue short-term profits at the expense of the customer”, pointing out that “(p)roduct misselling is too rampant to be dismissed as an aberration of a few overenthusiastic sales personnel.” Since the Finance Ministry is responsible for financial regulation, it is truly surprising that it can only complain about such practices and enjoin private players to behave better, rather than controlling it through regulation.
Despite these efforts, the recent general elections showed that the government’s attempt to control the narrative about the economy is no longer successful. And the demands of the youth, increasingly disheartened, disgusted and made desperate by the absence of any job opportunities and the endless scams in higher education and testing agencies that are now directly controlled by the Modi government, can no longer be ignored or treated as “anti-national”. So the Budget Speech paid lip service to job creation for the youth, by announcing a package that involved some plagiarizing from the Congress Party’s manifesto, along with a few minor measures. Typically, this package is unambitious and underfunded even in the intent, so the chances of it having any positive impact in practice are minimal.
Similarly, farmers across the country who have spent the past few years in active protests, are bound to be disappointed by the neglect of their most central demands like that of a legal guarantee for the Minimum Support Prices for crops, and the paltry little schemes that have been offered up instead. Allocations for the basic public spending that affects people—for the employment guarantee programme, for nutrition and food access, for health and even for the pitiful small old age pensions—have all been frozen at the previous year’s levels.
But all this is frankly no more than what could be expected. So what is the surprise? The real surprise is in the continuing dismissal of fiscal federalism, even at a time when the minority government is dependent for its survival on allies who control state governments. It was widely expected—not least by the people of Bihar and Andhra Pradesh, and presumably by their leaders as well—that the Budget would provide significant increases in funds allocated to the two states. But the demand for Special Category status, which would have given access to much more central funding, has been firmly denied. And the additional allocations are relatively small: only Rs 15,000 crore to Mr Chandrababu Naidu for building his new capital city Amravati, and a slightly lower amount to Bihar in a combination of allocations for increased spending for rail, road, education and religious tourism infrastructure. It is hard to see how this would be enough to placate these allies, or help them to justify to their electorates, their support for the minority Modi government at the Centre.
It is hard to believe that could be that there are other deals that are not specified in the Finance Bill. There could be favoured regulatory and subsidy-providing treatment of corporates from the two states, or other such measures that need not be announced. With respect to Andhra Pradesh, options have been left open for more spending under the AP Re-organization Act, and this could be why Grant-in-Aid to state governments for the creation of capital assets is set to increase by nearly Rs 87,000 crore, though it is not specified exactly where this will go.
All in all, this Budget reflects the now well-known audacity of the Modi government with regard to everyone beyond the top leadership. To be fair, it did indeed manage to get away with this approach for nearly a decade. Whether that will continue to serve it well in the more fluid political context will surely become clear fairly soon.
