The interim budget presented to Parliament by interim finance minister Piyush Goyal fits into a pattern. Taken together, the five budget speeches of finance minister Arun Jaitley and the sixth one by Goyal present the Bharatiya Janata Party’s vision for the economy and the polity. How different is the BJP’s economic vision from that of the erstwhile Indian National Congress and its contemporary version, the Sonia Congress? There is an increasing emphasis in the “Modi Budgets”, so to speak, on offering something to everyone. It is like what so many Indian restaurants offer to their customers: “North Indian, South Indian, Chinese, Fast Food”.
A BJP budget speech sounds so much like good old Congress speak. Goyal has not left any significant socio-economic group out of his speech. From farmers to soldiers, salary earners to investors, there is something for everyone. At its core, the BJP’s economic vision is no different from that of the Congress. Borrowing political scientist Rajni Kothari’s evocative phrase one can say that the BJP is trying to put in place its own version of the old 'Congress System” of appealing to a wide cross section of society going beyond its narrow and limiting “Hindu-Hindi Heartland” to emerge as a dominant national political force.
If there is any departure from the norm, it is the emphasis on the wants of the ‘aspirational Indians’ but there are limits to how much one can offer an aspiring voter. It is best to stick to the knitting and focus on the perspiring one. That is what Goyal has done. There are many promises for the future but the fiscal handouts here and now are for small and marginal farmers and the so-called lower middle class – the economically weaker sections (EWS).
Prime Minister Narendra Modi’s finance ministry has read the literature on political business cycles. From Polish economist Michal Kalecki’s 1943 paper to American economist William Nordhaus’s paper of 1975 and beyond, there has been growing literature on how political parties in government spend their way into elections in the hope of injecting a ‘feel-good factor’.
So, the promised reduction in the fiscal deficit to 3 percent of national income will not happen anytime soon. Indeed, even the budgetary commitment to bring it down to 3.3 percent has been compromised and the government has said it would be comfortable with a revised as well as a budget estimate of 3.4 percent. Such fiscal injections become even more necessary if there is a ‘feel-bad’ factor in play in the run-up to an election. More than the fiscal arithmetic of the budget is its political economy.
So what is that ‘feel-bad’ factor that the Modi government’s interim budget seeks to address? Clearly inflation is not such a major concern, with oil prices down and food prices low. But, food has presented a problem. The terms of trade between agriculture and the non-agricultural economy have been adverse to the grower. Farm economists Ramesh Chand and SK Srivastava of NITI Aayog have argued that a moderate increase in the wholesale price index along with a fall in food prices has resulted in adverse terms of trade for farm output. That would explain the widespread view across the country that farmers are an aggrieved lot. The Pradhan Mantri Kisan Samman Nidhi (PM Kisan) seeks to address precisely this concern. Taken together, the PM Kisan initiative and the Pradhan Mantri Shram Yogi Maandhan will benefit 22 crore citizens – 12 crore farmers and 10 crore labourers.
The finance minister has provided PM Kisan Rs 20,000 crore in the revised estimates of the budget for 2018-19 and Rs 75,000 crore in the 2019-20 budget. This sum is to be disbursed in three instalments of Rs 2,000 each to 12 crore farmers and tenant farmers with up to two hectares of land. Since this scheme is to be rolled out with retrospective effect from December 1, 2018, it has generally been assumed in the commentary on the budget that at least two instalments will be paid into farmers’ accounts before the voting day. Assuming each instalment would cost Rs 25,000 crore and given the additional provision already made in the 2018-19 budget, it can be safely calculated that Rs 50,000 crore will be injected into the farm economy this quarter. That is a lot of purchasing power and that is what perking up the ‘political business cycle’ is all about.
A second feature of the budget’s political economy is the concession made to the lower middle class through a rebate provided for tax payers in the income bracket of up to Rs 5 lakh per annum. This gesture must be viewed along with the Union government’s decision in January to extend reservations to economically weaker sections among the upper castes. This EWS group of what are essentially lower middle class, mostly upper caste, urban families constitute the core of the BJP’s support base, especially in the Hindi heartland.
The income tax rebate that is expected to benefit salary earners, small businesses, small traders, pensioners and senior citizens is estimated to cost Rs 18,500 crore. Thus, while the interim budget speech promises many things to many people, the interim finance minister has put his money where his mouth is, mainly for farmers and the lower middle class.
The rest of the budget speech reads like the contours of the BJP’s election manifesto. The Ten Dimensional Vision presented by Goyal can be expected to frame the BJP’s election manifesto. However, if in 2014 the BJP got elected based on its promises and vision, in 2019 the voter’s decision will be based on performance rather than promise.
(Sanjaya Baru was Chief Editor, The Financial Express and Business Standard)
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