JOIN USPractitioners of the art of divining budgetary intentions from the survey of the economy that precedes it, faced ample challenges this year. It was the first full-year budget from a government seeking to fulfil an electoral mandate won on the promise of pulling the economy out of a period of sloth. And the Economic Survey for 2014-15, released just the day before, provided some inscrutable prose and statistics.
The Indian economy, the survey said, was in a “sweet spot” seemingly all primed for “big bang reforms” that would propel it into a new growth orbit.
Just ahead of the budget session, the Central Statistical Organisation (CSO) announced a new procedure that by a seeming miracle bumped up the rate of growth of the economy substantially for the year 2013-14. The Survey cast some doubt over this exercise, which it found “puzzling” and inconsistent with other indicators. Within a political framework, it would seem that the growth estimate did not quite square with the discontent that Prime Minister Narendra Modi skilfully tapped to win the 2014 elections, in the nearest thing to a landslide since 1984.
If growth equals political success, there is no ready explanation for the Congress’s ignominious loss in the 2014 elections and Modi’s equally dramatic victory. Yet, in the promises it makes, this year’s Union Budget doubles down on the logic that growth is an assurance of economic well-being and political success.
Introducing his Budget, Finance Minister Arun Jaitley spoke with some pride of multilateral agencies in a scenario of global depression, certifying India’s growth prospects as robust. And banishing the element of scepticism in the Survey over the CSO’s growth figures, the minister forecast a rise of at least one percentage point in the year ahead. This put a double-digit growth rate well within reach, he said.
After this genuflection before the statistical altar of growth, the measures Jaitley outlined did not, even for favourably disposed observers, amount to more than “positive incrementalism”. This was an outcome foretold in the Survey, which spoke of “big bang reforms” in democracies with a multiplicity of actors as an “exception rather than the rule”, since “decision-making authority” in such situations is “vibrantly and frustratingly diffuse”.
It seemed to escape most observers, but the “big bang” had actually preceded the budget by a few days. In accepting the recommendations of the Fourteenth Finance Commission, the Union Government had signalled that it was steering course towards a new paradigm. The states, which have so far enjoyed a share of just over 32 per cent in the total divisible pool of taxes collected by the Centre, are to now get over 42 per cent.
Dramatic change
This is by any account, a dramatic change in the fundamentals. The greater devolution of funds to the states will be requited in other ways. There would be a scaling back of the scope of Centrally sponsored schemes which have so far been within the authority of the Planning Commission, the late lamented body now transformed in a philosophical shift to the Niti Aayog.
Significant cutbacks can be expected in the months ahead to the welfare schemes that the Modi government inherited from the Manmohan Singh-Sonia Gandhi diarchy. Finance Minister Jaitley made a special point of underlining that he would – far from cutting allocations as the Congress had darkly warned – actually increase allocations for the rural employment guarantee programme, which the Gandhi dynasty regards as its unique political bequest.
As fiscal power shifts to the states though, the sustenance of this programme cannot be taken for granted. Several among the most powerful spokespersons of the agrarian sector – such as Sharad Pawar and Parkash Singh Badal – have spoken up against the rural employment guarantee as an inconvenience, which compel higher wage payments for essential agricultural labour.
Modi himself, on the eve of the Budget, spoke with some disdain of the employment guarantee programme as a political sop, which ran counter to the aspirations of a young nation looking for opportunity. Though he could not envisage a future in which the youth would be sent out to dig holes in the ground in a pretence of employment, he would not tamper with the programme because of its inherent political rewards, he said.
As fiscal power is gradually transferred to the states, the scope of the programme will inevitably be altered. A guarantee of political stability in turbulent times could rapidly be cast away, creating the possibility of new expressions of agrarian distress with inevitable consequences in a democratic polity.
(The writer is a Delhi-based political analyst)