Among the first things Narendra Modi had done after he came to power in 2014 was to abolish the railway budget. For a while, some complained, especially politicians from Bihar, West Bengal, former rail ministers, and as usual, old socialists.
Now, nobody misses the rail budget. In the course of time, a generation of Indians will go to vote with no memory or reference to something called the rail budget. No one day of new train announcements, ticket price increases or cuts, claims of electrification, and so on. Railways are now managed on a running, routine basis. There is no big story for the media, no excitement.
This is the Modi doctrine for the annual national budget too. The markets fell today, as Modi’s seventh budget also belied the expectations of a Big Bang. The dismay was rational, but the expectation was entirely irrational. There was nothing in any of the six Modi budgets so far to suggest he believed in such a Big Bang theory.
He likes the budget to be low-key, routine, and increasingly, just an annual statement of accounts, along with much verbiage, platitudes, virtue-signalling and some shlokas and poetry thrown in. The bangs, if any, have been of the kind that the markets wouldn’t want: To hurt the rich, and thereby give the poor vicarious satisfaction.
Beyond that, the budget dies after a day’s headlines. The bangs come across the year, whenever the prime minister so wishes, or sees the need. It can be a really big one, like demonetisation, a plethora of amnesty schemes accompanying it. Or it can also be a roll-back bang, even a series of them.
Exactly what followed the disastrous 2019 budget. The ‘soak the rich to please the poor’ spirit went too far, the markets broke out in rashes, stories of millionaires and entrepreneurs buying foreign passports spread, FIIs got furious, and Modi got his finance minister to roll back that budget almost on a Friday-to-Friday basis.
Last year’s corporate tax rate cut has been the most spectacular reform under Modi, and would usually be described as a largesse for the richest. It was announced without discussion, debate, like just another routine administrative decision. Such as launching another new train. In this particular case, it was more in the nature of a mea culpa as the truly povertarian 2019 budget had wrecked the markets. But, imagine if such a tax cut had been made the centre-piece of an annual budget, with studios packed with ‘experts’ and the opposition out with sharpened knives.
So many of the free-market backers, including this writer, fretted that even after winning his second big mandate, Modi did not bring in any dramatic disinvestment in the budget. But does he really need to do such things, and draw criticism and debate, when he can do it one fine evening at a press conference? He is underlining the fact that a government does not need the budget to do such things. Just be watchful Friday, the finance minister’s favourite, and Wednesday (the Cabinet meeting day) evenings.
It is nobody’s case that Modi doesn’t love spectacle. Nobody likes it more than him. But he also wants to be in control of the spectacle, always. A big budget is problematic. Because if it pleases the poor, it usually angers the markets, as 2019 showed. If it is what might be called market-friendly, the poor don’t like it, and Rahul Gandhi calls you ‘suit-boot ki sarkar’, the last thing you need.
The Modi doctrine for the national budget is clear now. If six of these in a row did not convince us, we have the seventh now. In journalism, usually, we follow the ‘three is a straight line’ rule. This is seven. Narendra Modi has euthanised the budget as a news story. You can find evidence all over.
This budget shows the defence allocation almost stationary, despite the pension bill having zoomed. There is criticism for now. But, at the same time, the defence ministry has written to the finance commission, complaining of a lack of resources. The finance commission is setting up a committee to examine the idea of a rolling acquisition fund and may be a defence cess. When it is announced, probably at another evening press conference, it won’t be half a story of what a sizeable defence budget increase would have been. And because it is defence, nobody would dare complain. That is the Modi approach to political economy.
The only thing that borders on the adventurous in this budget is talk of greater privatisation, and the Life Insurance Corporation of India IPO. With BPCL, Air India, Concor, Shipping Corporation etc, the public opinion groundwork for privatisation has already been done. Preparation for BPCL was made three years earlier when the act setting that up was quietly bundled with hundreds of obsolete laws and repealed. LIC has now been slipped in. But, if there’s too much noise, especially from the RSS and swadeshis, don’t be surprised if it is deferred. Exactly as happened with the plan for sovereign debt bonds last year.
Narendra Modi’s is the most political, ideological and statist government in India yet. More than even Indira Gandhi’s. Every decision or move here is determined by its implication on voters. He will not take economic risks on the reformist side. Market players, fund managers, the money people, better get used to this. If you let your voting preferences colour your market judgement, you will build irrational expectations, as leading up to today’s budget. So, learn to watch the big picture through the year, not just the headlines on 1 February.