Budget 2019 is not overly populist, but watch out for a manifesto war among parties with competing sops

Reporters have been trying for long to find ways to spice up an otherwise humdrum job of covering a budget. In 2000, I traveled to a remote village at the tri-junction of Tamil Nadu, Karnataka and Andhra Pradesh to see the Vajpayee government’s budget of that year through the eyes of people there.

Along with some two dozen villagers, I sat before a TV in the community hall as Yashwant Sinha, then the finance minister, unraveled the budget. With their rustic and biting humour at its best, they laughed and poked fun at almost every sentence Sinha spoke.

This irreverence and total lack of credibility that a budget suffers from even in a non-election year has only grown over time. And it’s only worse when elections are round the corner, whichever party is in power. With bemused silence, voters watch parties falling over each other in offering sops of all kinds.

Budget 2019 is not overly populist, but watch out for a manifesto war among parties with competing sops

File images of Narendra Modi and Rahul Gandhi. PTI

When competitive populism drives democracy, the budget is the ruling party’s last chance before an election to flaunt its sudden love for the poor, while other parties must respond with lollypops of their own through politically vulgar documents that they grandiosely call manifestos.

War before war

That’s when a sop of one party triggers another sop double the size from a rival. And what you are about to witness in election-bound India is nothing short of a war of manifestos between parties. They will try to outdo each other in offering what the British call “election sweeteners” and the Germans rubbish as Wahlgeschenke or “election gifts”.

In the case of Friday’s “interim budget” of the Narendra Modi government, however, the first trigger was partly provided by Congress president Rahul Gandhi, who promised on 28 January a high-sounding but pleasantly mudded for-the-poor concept of a “universal basic income” or UBI.

Congress had apparently feared Modi would unveil something similar in his budget and wanted to pre-empt him.

According to some estimates, UBI could cost the country as much as Rs 22 lakh crore or 11 percent of the GDP and could lead to nothing short of a financial suicide by the Centre.

The protagonists of financial prudence then feared that Modi, pre-empted by Rahul in this fashion, would come up with a matching and perhaps more financially disastrous scheme to rescue Indians from poverty. But thankfully, he didn’t, probably for either of these two or both reasons. One: He didn’t want to look as if he was plagiarising what Congress might claim to be its idea. Two: He had better ideas.

In fact, the ideas central to Budget 2019, which isn’t overly populist, aren’t bad. In a CVoter survey, respondents placed the budget at 7 on a 0-to-10 scale.

“Income redistribution”

Yet, at least two key schemes of Modi’s budget come under what economists call “income redistribution”, the same description that goes for UBI. These are: direct cash payment of Rs 6,000 in three instalments for farmers with land of two hectares or less and a “mega” monthly pension for unorganised sector labourers who earn up to Rs 15,000 a month.

The income scheme is expected to help 12 crore farmers and the pension scheme, some 30 to 40 crore labourers. Even the move to hike tax exemption threshold to Rs 5 lakh too falls under this category, though it helps, instead of the poorest of the poor, some three crore middle class tax-payers.

“Income redistribution” is different from “wealth redistribution”, though both supposedly aim to bridge the rich-poor gap. The first one means transferring income from the rich to the poor. The second involves seizing assets of the rich and giving them to the poor. Giving cash doles to the poor and even progressive taxation — higher income tax for richer people in slabs — fall under the first.

Doles versus loan waivers

The “income redistribution” seen in Modi’s budget makes better sense than either introducing UBI or even waiving off farmers’ loans. If UBI is too insanely expensive, loan waivers strike lethal blows on the very fundamentals of economy.

Debt waivers throw the banking industry into doldrums, let rich farmers get away with benefits, deny any help to the really poor farm workers and don’t, in any manner, help to mitigate the agrarian crisis. Direct cash transfers to farmers have helped farmers in Europe better than subsidies.

Giving away cash doles to poor farmers may not be the best or the easiest way to improve their lot, but is a relatively better strategy as argued by prudent economists and, most recently by India Ratings and Research.

Land records key to Modi’s plan

But as India Ratings points out, the implementation of Modi’s scheme will depend on the availability of proper land records. If Telangana was able to successfully implement a similar Rythu Bandhu scheme, it was because it had the records which facilitated identification of beneficiaries eligible for cash transfer. Besides, this can work, as the example of cooking gas credits has shown, where banking and telecom structures are robust.

But Modi can claim to have improved on the Telangana model, which offers farmers Rs 8,000 per acre for two crops a year. In Telangana, there is no limit to the land ownership to get the cash benefit, but Modi’s scheme has a limit of two hectares, which ensures that only the poor get the help.

Modi’s budget must raise a meaningful debate over the relative advantages of a direct transfer of cash to farmers over the foolishness of loan waivers. But no such debate is possible in an atmosphere vitiated by compulsive criticism and jaundiced views. Modi himself is, however, guilty of doublespeak: his government is supposedly allergic to loan waivers, but he lets his party’s chief ministers use them to woo farmers.

But who’s talking about economics? It’s optics or political messaging or perceptions which matter more than anything. Economy can go to hell. It already has.

Author tweets @sprasadindia

Firstpost is now on WhatsApp. For the latest analysis, commentary and news updates, sign up for our WhatsApp services. Just go to Firstpost.com/Whatsapp and hit the Subscribe button.

Updated Date: Feb 02, 2019 20:24:47 IST

Also See