Narendra Modi's 2018 Budget seems torn between laying framework for 'new India', extinguishing fires of the old

Right from the day he took oath as the prime minister in 2014, Narendra Modi seemed a man in a hurry. He believed that his mandate was not to just tinker at the edges but trigger systemic changes. He outlined his vision and set forth on his mission with all the zeal of a missionary. The 2018 Union Budget is the first sign of hesitancy in that zeal.

Modi still retains the audacity of his vision (consider the sweep, expanse and boldness of his flagship health protection scheme) but the budget is also a reflection of the prime minister's realisation that it is tough to bulldoze through these systemic changes and shape behavioural upheavals in absence of institutional capabilities.

File image of Prime Minister Narendra Modi. AFP

File image of Prime Minister Narendra Modi. Getty images

The infirmity isn't of Modi's making but he must own it, and gets no allowances on that count. To a certain extent, the budget catches this tense interplay between the strength of his conviction, his frustration at the lack of a stable delivery framework, the resultant erosion of his political capital and his belated attempt at recalibration. It seems a document torn between twin impulses: laying the framework for a 'new India' and extinguishing the fires of the old.

In the bargain, the underlying theme of the budget becomes one of crisis management instead of hope. Its biggest statement of intent is ironically the most opaque. The world's biggest government-funded healthcare programme that proposes to provide social security to 10 crore economically weak families (potentially 50 crore citizens) and firewall them from ailments at an annual coverage of Rs five lakh per family, may forever transform half-a-billion Indians, and subsequently, India. It is a magnificently ambitious step, more so for India's developmental economy.

These are also families where one ailment or an infirmity might be the difference between a decent life and destitution. It manages to focus on an area that has remained long ignored at India's peril and criminally neglected by governments both at the Centre and the states.

It may also have a huge impact on the BFSI (banking, financial services and insurance) sector. Yet, in absence of a budgetary outlay or even a clear fiscal allocation roadmap – and given India's chronic weakness in delivery mechanism – the transformative scheme has been criticised as high on hope and low on specifics and derided as mere poll rhetoric. This seems unfair.

However, leaving aside habitual cynicism from political rivals or the government's detractors, well-meaning critics too have raised questions over the practicality of the scheme.

"The Rashtriya Swastha Bima Yojana has a Rs 365 a year premium for coverage of Rs 30,000. With near 17-fold increase in coverage, where will the cost of premiums come from? Will these be borne by the beneficiaries in some ratio? Or will the state governments be asked to cover part of these costs?" asks Aashish Chandorkar in OpIndia.

Former secretary for the health ministry Shailaja Chandra notes in The Print that 'ModiCare' places a fair bit of onus on states that automatically scales up the difficulty level in implementation given their poor professionalism:

"Judging from the implementation of the much smaller Central Government Health Scheme, the payouts by the government have been chronically slow and cumbersome, and many hospitals have opted out. It is precisely because of the track record of delayed payments that one is concerned. The management of the programme would have to devolve on the states, which do not function at the same level of professionalism," she writes.

Union finance minister Arun Jaitley has remained evasive on the question of funding. He has allocated a token amount and pledged to raise funds (which according to some estimates may cost the exchequer $1.71 billion a year through the CSR (Corporate Social Responsibility) route. It is not clear whether corporate or philanthropic contributions will be enough to cover the expenses of setting up the planned 15,000 'wellness centres'.

Jaitley has also talked about the possibility of raising the funds required for both health care premiums and MSP by taxing the gains on equities. "I think both minimum support price and healthcare can be supported only out of the long-term capital gains taxation," he said on Thursday.

The finance minister's math seems improbable, given the fact that revenue secretary Hasmukh Adhia told the media on the same day that the government expects no more than a modest Rs 20,000 crore in the first year and a figure double of that from the second year.

This gap between ambition and reality runs as a persistent trope through the budget. Pratap Bhanu Mehta calls it "sleepwalking into delivery architectures without serious regulatory capacity" in The Indian Express.

The prime minister and his generals correctly diagnose the issues but sadly seem incapable of finding new ideas to address the issues.

Be it a proposed hike in minimum support price, reintroduction of long-term capital gains tax (LTCG), hiking up of customs duties on a wide-range of imports or missing the fiscal deficit target, Jaitley's budget dips into the tattered, old bag of the 1980s era socialism.

The budget document reads: "I propose to increase customs duty on mobile phones from 15 percent to 20 percent, on some of their parts and accessories to 15 percent and on certain parts of TVs to 15 percent. This measure will promote the creation of more jobs in the country."

The strategy of imposing customs duties on imported goods to "create jobs" is a questionable one. This plan has failed in the past. Instead of boosting the economy it has encouraged crony capitalism and forced consumers to opt for substandard goods. This focus on import substitution and protectionism not only goes against Modi's declarations on the Davos platform – where he equated protectionism with terrorism – but also threatens to undo the gains achieved by our economy through liberalisation.

As Mihir Sharma writes in NDTV: "There may be excellent reasons for the government to reverse the long trend towards openness in India's economy. Some have argued it has led to de-industrialisation. But let us state openly then that this is what we are doing. To claim we are a beacon of openness and then work in the opposite direction leads to questions about the government's sincerity."

The moves, taken together, betray a hesitation in Modi and a rare wavering of confidence. It could be that the recent political trend arising out of BJP’s narrow win in Gujarat and reversals in Rajasthan is forcing him to be circumspect. India is a restive, responsive democracy. Even the most popular of leaders (and Modi remains one) must face crises of trust. So far, Modi had responded to challenges with a boldness of vision, confidence and audacity. This budget makes him look shaky.


Updated Date: Feb 02, 2018 18:40 PM

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