For simplicity of understanding, and also taking the cue from our prime minister’s penchant for acronyms, let’s call this the BASE effect budget. Or it might be more apt to borrow from that Salman Khan film (Sultan) and describe this as a case of BJP ko BASE pasand hai. BASE, in this case, stands for Bihar, Andhra Pradesh, Socialism and Employment.
Before we dive deeper into the political messages in the 2024 Union Budget, however, we must underline the imperative never to separate politics from economics.
While so much newsprint space and airtime is spent analysing the financial, fiscal and taxation aspects of the Union Budget, it is the most important political statement a government makes in an entire year. It speaks not just on political economy but also shows where the government is headed, and where it is coming from. The latter is more important than the former in this year’s budget.
Play Finance Minister Nirmala Sitharaman’s speech again. For the first 25 minutes, she speaks almost entirely about Andhra Pradesh and Bihar. If you think that’s too much time — spending nearly one-fourth of the entire speech on two states out of the 28 in the Union — you risk overlooking the political message. The 10 budgets of the Modi government so far were BJP budgets. This is its first coalition, NDA, budget.
That’s why so much time and money was allocated to just these two states, accounting for less than 15 percent of India’s population. Both were divided in the past, shed their lucrative zones, and have been asking for special status. Nobody listened to them. But now, without their 28 seats (TDP, Andhra 16 and JDU, Bihar 12), the NDA would fall into a minority. This is leverage.
These 25 minutes, and the tens of thousands of crores promised tangibly, come alongside much else not yet translated into money: Medical colleges, airports, expressways, and completing a nearly-abandoned mega hydro project (Polavaram, Andhra) are intangible, but substantive. The first political statement, therefore, is a confession: unlike the earlier two, our third is a coalition government. This accounts for the B and A in our BASE formulation.
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If there’s anything this budget lacks in, it’s economic messaging. There are no wide statements of reform, no mention of privatisation, disinvestment, no big tax cuts, incentives, deregulation. Apart from welcome fiscal discipline, there is also the reformist withdrawal of that devilishly named angel tax. This is, however, probably our only budget in about two decades that does not mention the government reducing its presence in business. Compare this with the Modi government’s statement of intent in mid-pandemic reform flurry when it promised that the state would get out of all businesses except some minimal presence in strategic sectors. That idea lies buried in the indifferent outcome (for the BJP) of the Lok Sabha elections.
Searching under the miscellaneous receipts column, we find a mere Rs 50,000 crore on the disinvestment count. Year after year, Modi governments have failed to achieve their targets from disinvestment (PSU share sales, not privatisation). The only substantive privatisation since 2014 has been Air India, and the idea is fully off the table now. On the contrary, the government has budgeted for Rs 2.9 lakh crore from RBI and PSU dividends. Don’t distract me with talk of milch cows when the government believes it owns such a formidable gaushala.
This government is allocating trillions to incentivise the private sector to employ people, through subsidies and subventions to be administered at various points of time. The process is complex enough to justify another ‘bhawan‘ coming up in New Delhi. This is a most remarkable state intervention in private sector job creation.
In the real world, however, do businesses hire more just because the government may underwrite some fraction of the cost? Businesses hire when they see profits and growth and in a more free-market, reformed economy, the government would help by creating infrastructure, deregulation, moderate taxation and whatever else it takes to make that possible. It’s a naive and garden-variety socialist state state that thinks it can drive up employment by offering incentives for hiring.
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We could in fact have started this analysis with the ‘S’ word or socialism. Because that is the overwhelming political message of this budget. There are minor tax cuts (Rs 17,500 per year being the highest) for the lower-slab tax payers. But there is a definite move towards a European-style soak-the-rich approach. Capital gains taxes have gone up across the board. An increase to 12.5 percent from 10, by the way, is a rise of 25 percent over the base. The short-term capital gains tax has gone up even higher, by 33 percent to 20 from 15. And the withdrawal of indexation of benefit on property, by implication retrospective, also takes you to European-style socialist taxation.
Add it to the state-funded internship programme and the incentive to employers — ideas we saw in the Congress party’s self-avowedly and unapologetically socialist manifesto — and you’d be safe to conclude that in its 11th year, the BJP has brought us back to a hard truth. That whatever the other ideological arguments in our politics, socialism remains our national, bipartisan economic ideology.
There was much clamour at one point that if the BJP returned with a supermajority, it would at least take out that Emergency-era insertion of “secular and socialist” from the preamble of our Constitution. You can be sure no such a thing is going to happen now. This budget proves that the BJP now accepts that socialism is the third letter, S, in our BASE proposition.
The ‘E’ at the end is obviously employment. The cash being thrown at it also tells us that this budget is the political statement of a leadership that has spent too much time reflecting on why it came up so short in the elections. That is why the budget is so low on the usual breezy talk of the future. The BJP’s think tank is still bogged down, brooding over what went wrong, how to prevent further damage. Like every government in our history, it has leaned back on distributive socialism when seriously challenged.
Postscript: Credit where it’s due. That BASE formulation was thought up by ThePrint Deputy Editor (Economics) T.C.A Sharad Raghavan. I happily borrowed it from him.
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