What brings you to power does not necessarily keep you in power. As opposition you belong to the demand side and once you are in government you are on the supply side.
You cannot behave in the same way once you shift from one role to the other. This was the remark – a perceptive one - from one of the BJP’s middle rung leaders in a newspaper interview recently. The context was different but it holds true in the case of Arun Jaitley’s maiden budget. If it looks suspiciously close to the UPA’s budget in its general approach to the economy with a minor shift in emphasis, this should not surprise anyone. Once political parties move to the supply side, they need to tone down and develop a sense of balance.
Probably everyone expected too much from Narendra Modi’s first budget as prime minister.
The expectation was largely irrational to begin with. Many wanted whatever he and his party promised during its long election campaign to be reflected in the statement of the finance minister.
They sought a magic formula to fix the problems of the economy. He had sold a vision to the people; they wanted it presented upfront, not couched in clever words. But a Union Budget can only go so far. It is, after all, only a statement of accounts and whatever is said during its announcement is not cast in stone. We have revised estimates once ministries argue their case and, in any case, most of the reform measures expected from the government are supposed to be administrative decisions. These could be handled later.
Here are some of the big questions everyone sought answers to.
First, inflation. Will the government announce something dramatic to take care of retail inflation which has stayed consistently above 10 percent over the last one year? While in opposition the BJP had kicked up a storm, calling the UPA government grossly incompetent for failing to tackle the issue of price rise. Schemes like NREGA had created distortions in the farm sector by pushing up agricultural wages which had a cascading effect on production, they claimed.
They blamed the poor management of supply side economics by the previous government for the rising inflation. Now although they have only been in power for just over a month, the tune has changed. If the budget appears vague on targeting inflation and short on solid measures, blame it on the complexity of the matter. There are simply no quick fixes. On the supply side of governance, the BJP has to shoulder the responsibility of raising wrong expectations.
Second, subsidies. At more than two and a half percent of the GDP, subsidies are a great burden on the economic health of the country. Every economist worth his name has been shouting this out from every available rooftop. What they are really saying here, is that the wretched poor are dragging the economy down by availing things for cheap through government largesse. Bring this down to half a percent of the GDP or better yet eliminate it altogether and the world will be much better place.
Before the elections, the BJP pandered to them, letting it be known that they were in perfect agreement with them on good economics. This despite the fact that its own state governments have been busy practising what would qualify as bad economics. If it’s on a sticky wicket now, it just has to grin and bear it. The budget does not advocate any drastic cut in subsidies but makes generic statements on disciplining several subsidy-guzzling areas. This is for one simple reason: it is not easy.
Third, growth. After sub-five percent growth in the last two years the country seems to be in a hurry to leap to the high trajectory. Jaitley himself has expressed the ambition of eight percent growth in the coming years. Not bad. The government has found a one-point solution to all economic problems too: FDI. There is no problem with this either. But without core sector reforms taking off, it will be a long wait till these FDIs translate into real economic activity on the ground. Despite all the negatives surrounding the UPA government, FDI flow had gone up by 28 percent in 2013 to $28 billion. This can only get better with the pro-investment push by the government. However, the budget today remained ambiguous about the Retrospective Tax, which is believed to have put off potential investors.
Leave alone the long-term projects – such as 100 smart cities - and the BJP’s budget could be an improved version of the UPA’s. The point is that the party might end up losing support in impatient influential circles unless it tempers high expectations all round.
One budget cannot be the handbook of solutions to all economic problems the country faces.
Reviving the economy is going to be a long haul, more of a nuts and bolts matter than of grand policy initiatives. It might not get you lot of applause and the quick approval of the Sensex, but the achievements will be substantial. The budget offers no roadmap but makes its pragmatic intentions clear. For now that is good enough. The party has to be careful about rhetoric and mindful of this: what brings you to power does not keep you in power. The cheerleaders can wait.
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Updated Date: Jul 11, 2014 09:51:35 IST