Budgets are good case studies to explain how political business cycle operates with public support

Incentive to corporate sector, selling of public utilities and privatisation in Union Budget 2018 is justified for public needs i.e. capital for development.

S Mohammed Irshad February 06, 2018 14:48:55 IST
Budgets are good case studies to explain how political business cycle operates with public support

Micke Kalecki’s select ‘Essays on the Dynamics of the Capitalist Economy’ published in 1971 and William D Nordhus’ ‘The Political Business Cycle’ theory in 1975 were not meant for discussing a budgetary exercise. However, their theory was used in making of Union Budget 2018. Kalecki had observed that business leaders never wanted to see a full employment condition since it leads to a situation wherein the employer loses control over workers. The business community wanted total regulation of workers, and hence they keep unemployment as a guiding principle. So, the political class prefers to play out unemployment plank during elections.

Nordhaus proposed a more complicated model which directly refers to the party politics. He argued that the party in power often attempted to stimulate the economy before elections to get more votes. Kalecki and Nordhus would never have imagined that politicians in India would put their theories into practice. The Union Budget 2018-19 is a reference note to understand the theoretical perspective of political business cycle model presented by them.

Budget 2018 reflects the characteristics of all the budgets presented in Parliament since 1992. Every Budget, since then, has given push to private investments and relaxed tax rates. This year, it has extended the benefit of reduction in corporate tax of 25 percent to companies with less than Rs 50 crore turnover (Budget 2015) to those with a turnover of up to Rs 250 crore.

There is nothing new in these decisions and it will continue in next Budget (even if BJP loses and a new party comes to power). Another interesting dimension is that such concessions have increased the flow of corporate funding to political parties and the ruling party gets more funds than what the Opposition gets. What makes Budget 2018 unique is the promise to revamping agricultural credit and healthcare security to 10 core poor households. Though agriculture gets much needed space, there is no proper action plan on it in Budget.

Budgets are good case studies to explain how political business cycle operates with public support

Representational image. PIB.

Budget 2018 categorises agriculture under ‘agribusiness model’ and pledges an institutional credit of Rs 11-lakh crore which in itself is a big move. The corpus saw a substantial increase from last year. It emphasises the need for taxing farmers' income and making full use of MGNREGAS to build agri infrastructure. Besides, the Budget 2018 raises the importance of increasing government revenues. So, in future, more taxable areas and crops should get into priority list. The success of huge capital support and making use of MGNREGA depends on the long term vision plan. It also hinges on the institutional support to wipe out distress in farm sector and capital investments in agri infrastructure.

It is still an incomplete project as every Budget promises schemes and programmes and the issue of distress in farm sector and suicides should get a speedy hearing. So this complexity needs to be removed, otherwise it will benefit very few farmers. Another major attraction of this Budget is the proposed healthcare plan. The government will launch National Health Protection Scheme which aims to cover over 10 crore poor families, roughly 50 crore people.

The scheme would provide coverage upto Rs 5 lakh per family per year for secondary and tertiary care hospitalisation. We should agree with the finance minister saying this was world’s largest government funded health care programme. However, there is an interesting contradiction in the number of poor households mentioned. As per the census 2011, total number of houses were 30, 61, 62,799, so the government considering 10 crore poor families was more than what Rangarajan Committee had assessed at 29.5 percent of total population.

The Budget has not shed light on how would the healthcare scheme look like? Is it going to be health insurance coverage? If so, what type of institutional support does exist? It is a matter of concern. Here is the importance of National Health Policy, 2017 which proposes to establish 1.5 lakh health and wellness centres with funding from the corporate houses through CSR initiatives. These funds would indeed a first step towards total revamping of healthcare system.

So the proposed health coverage is going to expand the market access of insurance companies, including private insurance companies. It would displace the public investments in the healthcare sector. Now see how the application of Nordhus theory of the political, business cycle works out. It attracts the imagination of millions of poor and middle class households. The people at large are more worried about the will of the government to think in favour of them rather than raising sources of income.

Budget is silence on modus operandi of this project and hence it is a challenging option. The policy makers and companies look for the action plan and for the society it is absolutely a ray of hope. So, if the government wants to turn the promise into reality, it has to bring the action plan to the public domain. Insurance alone do not fetch votes since it involves financial participation. Nordhus and Kalecki model works only when there is demand for needs and fortunately in India it is easier for the political class to apply the political business cycle approach.

Public imagination and short collective memory are the inspiration for this. Interestingly the incentive to the corporate sector, selling of public utilities and privatisation is justified for public needs i.e. capital for development. So our Budgets are good case studies to explain how the political business cycle operates with public support. It is not just limited to the BJP it is benefiting every party.

(The writer is assistant professor at Tata Institute of Social Sciences.)

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