Conflicting factors

Goodies in Budget

Contrary to what many claim, essence of economic policy making is all about politics. Over the years, particularly since the beginning of the nineties, the corporate world and the mainstream media controlled by them managed to create an impression that it was not so. This was the ‘brave new world’ of Milton Friedman and his Chicago boys.

Such thinking permeated through the corridors of power across large parts of the world and the top echelons of international institutions and multilateral agencies. But the financial meltdown and the subsequent recessionary environment have changed all that.
Against such a general background, like the proverbial ‘return of the prodigal,’ overt politics has returned in India. This was squarely on display during the presentation of the first budget of the new UPA government. The makings of the budget, this year round, was shaped in the crucible of the biggest parliamentary electoral exercise. And of course, the global environment was very much there to complement the direction.

Electoral success

Coming close on the heels of the general elections, it could not be otherwise. The electoral success of the Congress which surprised many was a combination of many factors. But two most important portents come out with underlined significance. For the first time in many years, corporate India rallied behind only the Congress. In the past, it has not been so and loyalties had been divided between the big two -- with the BJP sharing some of the spoils.

The reasons for such a consolidation are not difficult to explain. Notwithstanding the Left, the first four years of the UPA-1 -- ensured really a season in the sunshine for corporate India. In the four years between 2004 and 2008 the wealth of the super rich grew exponentially as it had never before.

Armed with this goodwill of the corporate world, Congress approached the hustings with the full knowledge that such support by itself cannot see them through. So the war cry of zealous conservation and protection of the aam admi. The association of the Left, which otherwise was sought to be shrugged off as an avoidable irritant -- actually proved to be a boon at this crucial election time.

The national rural job guarantee, the distribution of pattas among traditional forest dwellers both tribal and non-tribal, the enhancement of the minimum support price for agro commodities, the bank loan waiver -- all such ‘indiscretions’ due to ‘obstinate Left arm twisting’ proved to be richly rewarding in the polling booths. It is these two most significant factors which have informed the electoral verdict 2009 that had to be brought into play in the budget making exercise. It was really with an air of irony that the prime minister took on the BJP leadership on the floor of the house when they complained about the ballooning fiscal deficit.

Therefore, the decibel level of the government on the aam admi and the public expenditure preference was in a way the worst guarded secret of the government. But a more thorough prognosis of the budget figures do reveal the conflicting factors which shape the ruling party’s electoral fortunes.

 In spite of the ‘sound and fury’ on public expenditure, social sector priorities, infrastructure et al -- the government was actually not prepared to walk the talk. This is evident from the fact that incremental public expenditure is only to the tune of a measly 2 per cent of the GDP.

Whether this can achieve what fiscal stimuli have sought to achieve in other parts of the world? And in China where the size of the fiscal stimulus package has been decidedly the largest in the world -- of $ 587 billion has restored the Chinese economy to the high growth path of 7.9 per cent in the current financial quarter.

Will India's fiscal package in the budget be as effective? Because the impact of recession is increasingly becoming more pronounced, particularly in the sphere of job loss. Some of the more pronounced manifestations of the pre-financial meltdown neo-liberal trajectory continue to haunt large sectors of the economy in the form of an agrarian crisis and increased hike in food prices which is bothering the common man, the current atmosphere of triumphalism may prove to be short-lived.

But in spite of the realisation that the spending may be too little -- the options for the government was limited. The other factor which influenced the mandate weighed heavily on them. How can corporate India which rallied ‘body and soul’ for the return of the Manmohan Singh government be troubled with any further tax burden, if not with some further concessions.

But even if the euphoria of the electoral success provides some cushion of comfort for the time being, can the day of reckoning be postponed for ever? Can the interests of the aam admi and corporate India remain reconciled? To any avid observer of economics -- which is essentially an exercise in politics -- the answer would be obvious. The future will inevitably unravel the truth. But meanwhile let us stick to the convention of not spelling out the unpalatable and live in peace with the ‘honeymoon period.’

(The writer is a central secretariat member of the CPM)

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