Politics, populism dominate Nirmala’s first Budget

Finance Minister Nirmala Sitharaman presents the Union Budget 2019-20 in the Lok Sabha at Parliament, in New Delhi on Friday. PTI photo

Coming a day after the Economic Survey highlighted the urgent need for the animal spirits in the economy to be rekindled so that the growth slowdown can be reversed, the second Modi government’s first budget failed to deliver a single bold move. There was nothing much in it for kick-starting investments, consumption or savings. In short, another opportunity missed for rolling out corrective measures for reviving stagnant exports, tepid manufacturing and stressed agriculture.

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The new finance minister, Nirmala Sitharaman, was in fact so cautious that the absence of any negative jolts, that could have further weakened the sentiment, became her maiden Budget’s biggest plus point. It’s main talking point was the bright red clutch embossed with a gold Ashoka Chakra, that she carried her budget documents in rather than opt for the trademark maroon colour leather briefcases her predecessors used.

Her speech in the Lok Sabha was sketchy on details, and gave the fiscal arithmetic a complete miss. Allocations and revenue estimates were relegated to the fine print, rendering it, oddly, a budget minus budgeting.

Peppered with Urdu couplets, Sanskrit shlokas and Tamil poetry, the speech quickly hit familiar political notes, with the minister recommitting the government to the populist agenda seen in its previous tenure, this time through the new slogan of ‘Gaon, Gareeb, Kisan’ (villages, the poor and farmers) and a renewed thrust on bridging the India-Bharat divide. She promised villages linkages to national grids for tapped water, electricity, rural roads, digital connectivity; and an assortment of promises for publicly provided affordable housing, cooking gas, loans and toilets. But the chief puzzle of India’s economic growth model, which is how is it to be qualitatively adapted so that growth can become jobs-generating remained unsolved. And with that the question: Are sustainable livelihoods going to be created for poor Indians?

The long-pending reform of labour laws found a mention, but no details were shared on how the government will overcome the resistance to the changes from unions, –required to be made so that the policies can become pro-employment – including those affiliated to the ruling Bhartiya Janta Party. In its first tenure, the Modi government was forced to push a similar plan on the back burner after the unions, in a meeting with the prime minister, refused to support the move. Labour laws currently protect barely 10 per cent of the workforce, but are a big enough deterrent for industry to increasingly turn to capital-intensive production despite the economy’s labour abundance.

The political message, though, was refined with the singling out of the super-rich for higher taxation. Surcharges on income tax have been slapped on those earning in excess of Rs. 2 crore a year. Given a small number declare incomes in excess of Rs. 2 crore a year, the move by itself is unlikely to improve collections much. But the announcement served to enhance the speech’s pro-poor rhetoric.

Remarkably, though, the government missed an opportunity to send out the right message on the acute crisis of healthcare service standards and child malnutrition in rural India in the aftermath of the tragedy in Bihar, in which 157 children lost their lives to AES, a preventable disease.

That the finance ministry has not shed its old habits of tinkering with taxes, regardless of the economic impact, was clear when customs duties on imported books were raised in the hope of promoting the domestic publishing industry. The move mistakenly assumed import substitution would work in the sector as it does in select manufacturing industries when the more likely impact is going to be increased cost of imported college text books. Similarly, although the expectation was that the budget will increase disposable incomes in the hands of consumers so that the consumption slowdown can be reversed, the budget increased customs duty on crude that will push up fuel and commuter costs for households.

All in all, the message from the budget is that politics, populism and poorly thought out policies remain the norm. Reforms will have to wait.

(Puja Mehra is a Delhi-based journalist. Her first book, The Lost Decade (2008-18): How India's Growth Story Devolved Into Growth Without a Story, has been published by Penguin Random House)

The views expressed above are the author’s own. They do not necessarily reflect the views of DH.

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