Budget 2013: Why politics will always affect economic decisions

Budget 2012 lacked the fizz. It was a middle-of-the-road budget, neither fish nor fowl. Weighed down by the pressure from demanding allies in a brittle ruling coalition, Pranab Mukherjee, the then Finance Minister, chose safety to adventurism. “It’s a budget for stability,’’ he said. For those in the know the hint was clear. He was not referring to economic stability but stability of the government. [caption id=“attachment_590887” align=“alignleft” width=“380”]  The alliance partners had turned aggressive and threatened the Congress of dire consequences if it strayed from populism. Agencies[/caption] The alliance partners had turned aggressive and threatened the Congress of dire consequences if it strayed from populism. Only a few days ago, Trinamool Congress chief Mamata Banerjee had objected fiercely to Railway fare hike proposals from party member and Railways Minister Dinesh Trivedi and had virtually disowned him. The DMK was throwing threat signals to the government and the parties supporting the government from outside - the Samajwadi Party and the Bahujan Samaj Party—had sent out tough messages too. Mukherjee, of course, could not have allowed the UPA to disintegrate by presenting a tough budget. So an insipid one it was. In 2011 too, it was a play-safe budget from him. This time he was laying the groundwork to pushing economic reforms and fighting inflation. It was a ginger move. He was wary of big ticket corruption scandals that had hit his government and the aggressive opposition reaction to it. Also, weighing on his mind was the presence of combative allies, who could easily join the opposition to bring down the government. What are we driving at? Well, it’s impossible to separate a budget from the wider political context. The annual financial statement reflects as much about the government’s plans with the economy as about its political compulsions and responses. Politics will overwhelm economics in budget decisions. After all, it is better to be safe than sorry. So how will budget 2013 turn out? Will Finance Minister P Chidambaram come up with something dramatic? Will he make the bold moves required to bring the economy back on rails? It will depend how comfortable the government perceives itself to be at the moment. As many as 10 assembly elections are due this year, most of them crucial from the electoral point of view for the Congress. The party has been on a losing streak in big states and it cannot afford to send a wrong message to the electorate through the budget. Budget 2013 could be the last one before the general elections of 2014. The government will be tempted to ride on it—there will be pressure from the party too - to woo the electorate. There are chances that it would throw good economics out of the window to court opportunistic politics. It would be under pressure from all quarters to go populist. However, Chidambaram, the good economist that he is, could still deliver a surprise with the backing of the inherently reformist Prime Minister Manmohan Singh. It would depend on the level of political confidence the government has right now though. Let’s check out how it is placed politically right now. With rabble-rouser Mamata Banerjee out of the coalition mix, the UPA is on sounder ground than it ever was since the formation of the government. The DMK is largely a silent ally and is more likely to sulk and protest than rebel. As experience shows, it’s much easier to handle than, say someone like Mamata. With some deft maneuvering it has ensured the support of Uttar Pradesh big guns Mulayam Singh Yadav and Mayawati. Either of their parties or both would help prop the government whenever it is crisis. This should provide the government some relief. It is a minority government right now yet the chances of it collapsing are slim. But that’s only half the story. Being a minority government leaves it exposed to blackmail from allies and outside supporters. Since it is a year of many elections none of the parties would prefer harsh measures by way of budget provisions. All the allies will be driven by their own electoral compulsions in the states and the government might witness a competition to shoot down all big ideas. The pressure will be high indeed. Now let’s ask the question again: Will Chidambaram be able to produce a brilliant budget? Well, it comes down to politics in the end.