Later this week the Bharatiya Janata Party (BJP)-led National Democratic Alliance (NDA) will present its sixth and final Union budget. Though only an interim budget, as the general election cycle will kick in within two months to elect a new regime, it is still very critical, both in terms of the underlying politics, as well as the economics, it will project.
If Prime Minister Narendra Modi, who will undoubtedly like all PMs leave his stamp on the budget, and his co-author, the finance minister, strike the right notes, it will help them shape the desired narrative to assist the re-election bid of the NDA.
At its core, the Union budget will have to strike the perfect balance in managing expectations and yet not ignoring the economic reality, which provides little or no fiscal space to underwrite populist schemes to politically blunt the largesse promised by the opposition, unencumbered by the burden of elected office.
In any case, it is also true that the Union budget in the context of a transformed Indian economy of today no longer commands the same cause and effect that it did previously. However, the daunting challenge facing the FM also mirrors equally compelling opportunities for the bold.
The thing is, the business as usual no matter how spectacularly packaged will be—like the so-called ‘dream budget’ presented by P. Chidambaram in 1997—only worth the headlines in the next day’s newspapers. On the other hand, an out-of-the-box thought redefining scope of the Union budget, and detailing contours of a new emerging India, will enjoy greater currency with a thinking electorate—and, they account for bulk of the voting populace. While the prudent would caution that this is not the moment for a daring flourish, for a consummate risk taker like PM Modi it is exactly the right circumstance to buck the norm.
Undoubtedly, the scope of the Union budget has diminished substantially. To put it frankly, it has lost its mojo. At the same time, India has undergone a transformative makeover since the presentation of the first budget of modern India seven decades ago. Yet, while its ability to be the force multiplier in the economy is diminished, it is still a document that can provide an excellent marker on the government’s blueprint for action.
Before that, it is important to understand why the Union budget has lost its verve. For one, the private sector has emerged as a key economic agent; in fact, private sector investment now outpaces that of the public sector. Second, the implementation of the recommendations of the 14th Finance Commission increased the share of states in pooled tax revenues to 42%, implying that fewer resources now accrue to the centre.
And, if we take into account the fact that almost three-quarters of the Union government receipts are pre-empted by payments owed on account of interest payments on the giant pile of internal debt, salaries of government personnel and subsidies, the money with the government is even less. Third, the introduction of the goods and services tax (GST) has ensured that most indirect levies are now decided by the GST Council and not by the Union government—so an FM, unlike in the past, no longer has the option of tinkering with indirect tax rates to offer sops to key electoral constituencies. Fourthly, the states, fiscally very empowered, are now in a position to influence economic action like never before.
On the other hand, the duo of PM Modi and interim finance minister Piyush Goyal, who is standing in for the indisposed Arun Jaitley, can’t miss out on the opportunity provided by the platform of the Union budget to make a fresh electoral case for the NDA.
At the very least, it will have to seek to address the perception problem facing the NDA (the latest survey conducted by the India Today magazine identifies the second biggest failure of the NDA to be in managing inflation; and this, when retail inflation has declined from near double-digit levels to little over 2% in the last four years.)
So far, this regime has contained the impulse to seek easy political gains through fiscal sops, preferring a policy of empowerment over entitlement (something it has not abandoned entirely). PM Modi’s steady popularity ratings—as recent opinion polls show, regardless of whether it is sufficient to guarantee a re-election, suggest that this mantra is working despite all the noise—some of it self-induced by misguided cadres—surrounding the government.
At the same time, they have not been averse to junk customs, such as advancing the presentation of the Union budget to 1 February. Similar was the case with the railway budget being merged into the Union budget. Clearly, there is a case for embracing a daring new format for the budget, the question is whether the NDA will exhibit the necessary political will to implement it.
Anil Padmanabhan is managing editor of Mint and writes every week on the intersection of politics and economics. Comments are welcome at firstname.lastname@example.org