This year’s Budget marks the first big shift in India’s political economy in 30 years. It is also a shift in the right direction. Right, ideologically as well as prudentially. The more political way of putting it is that it is the Modi government’s first BJP budget. The ones so far were all Congress+ to Congress+++.
It is fashionable in the chic circles to blame all of India’s problems on the reforms of 1991. India’s curse, on the other hand, has been how rare these moments of reform have been. That’s why when you get one of those, you call it a dream Budget.
After 1991, we had P. Chidambaram’s Budget in 1997-98, as the finance minister of Deve Gowda’s United Front government, backed by the Left. In fact, its first cabinet had CPI leaders Indrajit Gupta and Chaturanan Mishra holding key portfolios, home and agriculture respectively.
We could probably add the three Budgets from Yashwant Sinha and Jaswant Singh in the latter, reformist, ‘India Shining’ half of Atal Bihari Vajpayee’s NDA. In spite of the many rollbacks, the tariff and taxation cuts, seen with a privatisation push — cut short by a terrible Supreme Court order — this was a good phase.
The Rao-Manmohan Singh reform lost steam in about 18 months; Chidambaram’s 1997-98 one was a one-off. And Vajpayee’s surprise defeat in 2004 led to that ridiculously cynical new formulation from the UPA: Inclusive growth. That followed the self-serving presumption that the poor of India had voted for the Congress, upset by Vajpayee’s proposition of growth-mania. Never mind that the gap between Congress and BJP was just seven seats.
By the second term of UPA, growth was being blamed for everything that was rotten in India, and the supposed decline in the fate of the poor. That’s when we passed our rights-based laws, from education to food to jobs. A pity, UPA didn’t last long enough for Sonia Gandhi and her NAC to pass laws guaranteeing good monsoons and cricket victories.
These governments can say they didn’t have a majority. Modi was denied this alibi by India’s voters twice. He made a big first move by passing the new Land Acquisition (Amendment) Bill in the Lok Sabha. Then came the ‘suit-boot ki sarkar’ blow and the recoil. It knocked out any thought of larger reforms for six years. Demonetisation made it worse.
In this Budget, Narendra Modi, ironically helped along by the pandemic, has turned the clock back. In a democracy, everything, from health to education to defence, economy, welfare and the markets, rides on politics. The management and direction of the economy in a democracy is all politics.
You can no longer carry out reform by stealth. All the low-hanging fruit in that orchard have already been picked. On the contrary, the first six years of Modi saw the return of many bad habits — fresh empowerment of bureaucracy, protectionist import controls and tariffs, and worst of all, tax rate uncertainty.
Economists and public finance experts would know the finer points of the Budget. My vantage point is political. I see this as a turn in India’s political economy. The best news in this Budget is that there is no news on taxation. All tax rates are the way they were. This is progress. And it is political.
Because the air was rife with a hundred bad ideas, from increasing tax rates to confiscation of wealth, return of the failed inheritance and wealth taxes, and even presumptive taxation of unrealised capital gains. Much oomph was seen in those ideas in hallowed circles. Would we, however, want to imagine what the day after would have looked like if the Budget had followed those ideas?
The Modi government is notoriously honest about one fact: It does not listen to economists. In this case, it is good that it didn’t. Because, economists do not have to be accountable on the day after. It’s the politicians. Like it or not, the Modi government has made this distinct political call.
For decades now, especially the three since the 1991 reform, India has been trapped in the growth-versus-inequality binary. It is a bogus debate. Because if growth causes more inequality, what does the lack of growth do? Growth makes the rich richer, but does it make the poor poorer, even if the trickle-down is flawed and leaky? The rich do alright even when growth is declining in double digits. Check out this global rona-dhona (wailing) now over how the mega billionaires have added to their wealth in the pandemic year while hundreds of millions lost their jobs.
The political signal of this Budget is, the Modi government is now betting on growth even to raise more revenues. I can conclude this with the words of Michael Douglas’s Gordon Gekko in Wall Street, of course with some tweaking: The point is, ladies and gentleman, that growth, for lack of a better word, is good. Growth is right, growth works. Growth clarifies, cuts through, and captures the essence of the evolutionary spirit. Growth, in all of its forms; growth for life, for money, for love, knowledge has marked the upward surge of humankind.