In one way, the fact that our budgets year after year tend to be boring, so boring, in fact, as to leave the markets befuddled, not knowing whether to go up or down, is a good thing. Although, I am also equally intrigued by why the markets do not see a lower-than-budgeted fiscal deficit and a substantially lower estimate for the next year as a big positive.
This, I might see as the better and braver part of the budget, especially when big economies across the world are struggling with their out-of-control fiscs. Do the markets not reward fiscal discipline? Don’t ask me. I won’t even try to understand the markets. Trying to decode politics is hard enough, more fun, and safer, too.
Staying with politics for a minute, the most audacious and positive statement in the budget lies in the domain of politics and strategic affairs. It is the intention to amend the Atomic Energy Act and the Civil Liability for Nuclear Damage Act. Read this with the target of 100 GW (1 GW is 1,000 MW) nuclear power by 2047. Read it also with the quick adjustments forced by the return of Donald Trump.
If he’s transactional, what will India offer as ‘give’ in return for any ‘take’? Sizeable nuclear purchases (remember Westinghouse?) can work like magic. For that, India must amend its dead-on-arrival Civil Liability for Nuclear Damage Act (CLNDA) passed by the UPA government in 2010. Its main killer clause, allowing the operator to sue the supplier for damages in case of accident, was inserted on the BJP’s insistence then. Having lost out on the confidence vote over the Civil Nuclear Deal, it now got even by preventing the UPA (and India) from consummating that deal for clean energy.
The law, as it exists, stands in contravention, or let’s say, non-compliance with Convention on Supplementary Compensation for Nuclear Damage (CSC), which limits the liability on the operator and immunises the supplier. A BJP chafing from that Nuclear Deal defeat then had found fortuitous tailwinds in the perfectly timed (for their politics) controversial 2010 Supreme Court order on Bhopal gas tragedy liability. It brought the liability issue back into public opinion. The Left and the Right combined with environmentalists and liability law was strangled.
If the BJP detoxifies the same law now, it will bring economic, environmental and, most of all, strategic benefits. It will be another welcome turnaround after the Modi government’s embrace of the Civil Nuclear Deal, strategic shift to Washington, and, don’t forget, the border settlement with Bangladesh it had opposed under the UPA. If it goes through, it will be another case of ‘der aaye, durust aaye’ (better late than never). For more details on the complexities of this liability question, you can check out this Ashley Tellis paper on Carnegieendowment.org. Let’s keep our fingers crossed and hope that this budget promise is met soon. Ideally, before Modi heads to his first meeting with Trump 2.0.
Amendment to the Atomic Energy Act might involve shifting nuclear power generation to the power ministry. If the Modi government is able to swing these amendments, it would also benefit in its domestic politics. Andhra Pradesh already has 2067 acres of land allocated for a 6,600 MW (6.6 GW) nuclear power plant.
Consistency is a good thing
Back to the conventional aspects of the budget now. This string of what might be described as boring budgets underlines consistency, and consistency is a good thing. No sharp shifts or policy initiatives. A budget, after all, is meant to be a government’s annual statement of accounts.
The era when it used to set out the government’s evolving views on political economy, especially reform, ended some time back. There are two reasons for it.
One, that political economy is now fronted by the political leadership, read Prime Minister Narendra Modi. And second, there is already deep scepticism built into the public opinion when it comes to stirring announcements in the budget.
The point that P. Chidambaram once raised or sort of reflected on: what matters, outlays or outcomes, now tempers expectations from the budget. In the past 11 years, the most sweeping economic reforms were announced not in any budget, but in a series of press statements during the pandemic.
Most of these, from the farm reform laws to labour codes, have lost their way. The first repealed, and the rest meandering through the systemic (I prefer that to bureaucratic) maze.
Those of us who were so excited by that flurry of reform that we hailed it as a true and virtuous example of not wasting a crisis, are now chastened. India’s political economy is back to its basics. Or, let me be reckless enough to say, the Congress socialist basics.
The only headline-worthy highlight of this budget, for example, will be the income tax relief for the enormously numerous lower ends of the middle classes: with annual income of Rs 12 to 24 lakh. This is a far cry from that audacious Ronald Reaganesque tax cut for the corporates in 2019, hoping to light up fresh entrepreneurial fires.
Privatisation is forgotten and buried. Over the past months, the prime minister has claimed credit for the PSUs doing much better under him than his predecessors, and over the past week, he has repeatedly used metaphors borrowed from the Congress/UPA and the AAP, respectively: inclusive growth and ‘aam admi’. That insertion of “secular and socialist” that Indira Gandhi made in the Preamble of our Constitution through her illegitimate, sixth-year Lok Sabha now has a bipartisan stamp of approval. And at least one of the two, socialism, will continue to be observed in letter and spirit.
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“Although, I am also equally intrigued by why the markets do not see a lower-than-budgeted fiscal deficit and a substantially lower estimate for the next year as a big positive.”
The markets are not celebrating this because they understand that private investments don’t seem to be picking up pace any time soon mostly because there isn’t enough demand in the economy. Any economics major might explain to you that aggregate demand is – government expenditure + private investments + household income. Government expenditure in India remains the largest portion of this equation. If the government does not spend enough, growth will be slow. Which means less business.
Another point that I want to talk about is that investments in nuclear energy run the risk of becoming wasteful expenditures. Most advance democratic nations took over 2 decades to get nuclear plants online from announcement to completion at three to four times the estimated cost. You may check data to verify this claim. Committing to such massive endeavors has another consequence. It significantly hinders your ability to invest in other forms of renewable energy. India, as a developing nation, would have a higher risk on this front. So, if we cannot generate energy from nuclear for the next 20 years and we don’t have enough money to invest in wind or solar (which, by the way, due to increasing R&D and economies of scale is becoming cheaper by the day) we will have to rely on polluting fossil fuels to meet our energy needs. It will endanger future generations and make life poorer for the current generation by way of high import bills. So, not so good, is it?
Lastly, towards the end of this opinion piece, why did it seem like you were scoffing at the idea of secularism and socialism. I understand your problem with socialism. You take much pain to always show to the world that you will take centre-right libertarian positions on all issues but why does this last para seem so averse to secularism? Just asking to get clarity.
Some bowel movements become erratic by mere thoughts of BJP/Modi/RSS. SG being one of them.
A tax raise is socialist, while a tax break is capitalist. For example, socialist Sidddaramiah’s administration provides freebies funded by tax rises, whereas capitalists cut down both freebies and taxes.
The FM’s speech delivered while announcing the full Budget for FY25 had also talked of nucleat energy. In that speech, she had said: “Nuclear energy is expected to form a very significant part of the energy mix for Viksit Bharat. Towards that pursuit, our government will
partner with the private sector for (1) setting up Bharat Small Reactors, (2) research & development of Bharat Small Modular Reactor, and (3) research & development of newer technologies for nuclear energy. The R&D funding
announced in the interim budget will be made available for this sector. ” The Budget speech for FY26 has only provided more details on the same as the Outcome Budget for FY25 lists out the need for amendments that need to be made in various Acts.