Why budget 2014 was 'socialist': PM Modi wants to be seen as 'pro poor'

Well known economic writer Swaminathan Aiyar wrote today,"It's not a radical Modi budget but a Chidambaram budget with saffron lipstick added." But this may be a superficial understanding of the Modi-Jaitley thought process. There seems to be a method in the madness, especially when you see the way the NDA is simply repackaging the many social sector schemes of the UPA.

True, the similarity between the UPA and NDA was reinforced by the fact that Jaitley had retained the fiscal deficit figures presented in the interim budget a few months ago. The interim budget presented by P.Chidambaram projected a fiscal deficit target of 4.1 percent of GDP for 2014-15 and also showed that the government had achieved a fiscal deficit of 4.6 percent of GDP in 2013-14.

Arun Jaitley surprised everyone by retaining these figures in his budget. He even kept the same the revenue growth target as in the interim budget. There was a lot of continuity in the way Jaitley made the budget projections.

This was surprising because the BJP had been very critical of the interim budget, saying that the targets were not realistic and that the UPA government had burdened the NDA by doing 'creative accounting'. But Arun jaitley has now accepted all the key UPA projections for 2013-14 and 2014-15.



The NDA has also retained most of the UPA social sector schemes with some repackaging. This prompted Congress President Sonia Gandhi to say “this is like our UPA budget”.

This writer spoke to finance minister Arun Jaitley after the budget and asked him why he had been so generous to the UPA finance minister. Jaitley gave a smart answer by saying controlling expenditure and aiming at fiscal correction is a good thing. So he had decided to go with the tough targets set by the previous government. The finance minister also admitted that his government had indeed continued many of the social sector programmes of the previous government and would aim to remove their weaknesses because such policies are needed for the poor.

Jaitley said in a country with so many poor people, any economic philosophy which is totally market based will not work. When asked whether the BJP was practicing its own version of socialism, he admitted that a strong dose of inclusive policies were indeed needed. Again the language sounded a lot like the UPA’s.Only BJP is inventing new social sector projects named after Deendayal Upadhyay, Shyama Prasad Mukherjee etc. Jaitley said more such schemes named after relatively unsung heroes from the past will come.

A lot of this thinking also comes from Prime Minister Narendra Modi.

If you carefully trace Modi’s statements in the past few weeks, he has explicitly said that the government coffers are meant for the poor. This statement is very socialist in its tenor and intent. The reason why NDA has carried forward many of UPA’s social sector programme is because eventually Modi wants to take away the historically evolved branding of the Congress party as welfarist and pro poor. From Nehru to Indira Gandhi to Sonia Gandhi, the Congress has acquired a certain image of welfarism. Narendra Modi will gradually want to appropriate some of this. So there seems to be a strategy behind the way the NDA budget carries forward a lot Congress’s social sector programs.

There is another subtle message in the budget. Modi is conscious that he is seen by many as pro big business because of his perceived proximity to some big industrialists. So the budget has been careful in not giving any obvious benefits to big business. On the contrary, it sets up a Rs.10,000 crore fund to help small and medium enterprises to access much needed equity capital. This will also please the Sangh Parivar which has always wanted the BJP to focus more on smaller businesses who really form the backbone of India’s economy.

There was much humour generated by many "token" Rs.100 crore social sector schemes announced by NDA. A careful scrutiny will tell you these are promises Modi had made to various states during his whirlwind election tour. This is partly Modi's way of signalling he was putting in the seed amount and the rest will follow as the economy recovers. So the thinking behind the budget is not as random as some commentators would have us believe.

Surprisingly there was no bitter medicine for the common man in the budget. This is partly because some of it was already delivered before the budget in the form of price hikes in rail fares, sugar and petroleum products. So finance minister Arun Jaitley decided to provide some relief to the middle class in the form of raising the tax exempt salary limit to Rs.2,50,000 pre annum and providing additional tax relief on some savings instruments. All taken together means a monthly salary of upto Rs.30,000 will be free of any income tax.

Another significant development that Jaitley did not specify in the budget but is close to finalizing, is the new Goods and Services Tax(GST) regime which will truly help widen the tax base and bring areas like real estate and construction into the indirect tax net and also attack the menace of black money.

Jaitley told this writer he had almost worked out all the details with the Chief Ministers in the implementation of GST. Only a few issues remain to be resolved, such as bringing the contentious petroleum taxes within the GST ambit. The CMs have agreed to bring real estate under the GST net. This is a big achievement. The finance minister could have announced this in the budget but he chose to play safe.

Overall, the budget is a consolidation exercise though many expected some big vision statement in it. Here also Jaitley chose to play safe by not giving any big bang vision statement because he knows there are many economic risks on the horizon coming largely from an impending drought situation and potential inflationary flare up in the months ahead.

He is betting on growth by promising a big boost to infrastructure sectors and manufacturing. He will hope that growth picks up and increases employment and prosperity. Jaitley admits many factors, like global economy and monsoons, are outside his control. Running an economy of India’s size and complexity is always a gamble. You have to work with very few certainties.

The author is Executive Editor at Amar Ujala publications group.

Updated Date: Jul 11, 2014 14:29 PM

Also Watch

Social Media Star: Abhishek Bachchan, Varun Grover reveal how they handle selfies, trolls and broccoli
  • Monday, July 16, 2018 It's a Wrap: Soorma star Diljit Dosanjh and Hockey legend Sandeep Singh in conversation with Parul Sharma
  • Monday, July 16, 2018 Watch: Dalit man in Uttar Pradesh defies decades of prejudice by taking out baraat in Thakur-dominated Nizampur village
  • Monday, July 16, 2018 India's water crisis: After govt apathy, Odisha farmer carves out 3-km canal from hills to tackle scarcity in village
  • Sunday, July 15, 2018 Maurizio Sarri, named as new Chelsea manager, is owner Roman Abramovich's latest gamble in quest for 'perfect football'

Also See