Green and Global

THE BHARATIYA JANATA PARTY (BJP)-LED NATIONAL Democratic Alliance (NDA) owns several firsts in the making of the Union Budget. Under the leadership of then-Prime Minister Atal Bihari Vajpayee, it buried a colonial legacy by advancing the presentation of the Budget to 11AM instead of 5PM—aligned to the opening of the financial markets in London.

Under Prime Minister Narendra Modi, NDA, in its 10 Budgets, has rewritten the entire grammar of the making of the Union Budget. This process culminated in the fifth and final full-fledged Budget of Finance Minister Nirmala Sitharaman on February 1.

Not only did Sitharaman present a simple to understand Budget but also directly addressed cohorts—women, carpenters, ironsmiths, goldsmiths, potters, sculptors—who for the most part of the last seven decades had got used to being on the outside of the formal economy, looking in.

Identifying them as “creators of the nation”, Prime Minister Modi summed it up in his post-Budget address: “For the first time, the country has come up with many schemes as a tribute to the hard work and creation of these people. Arrangements have been made for training, credit and market support for them. PM Vishwakarma Kaushal Samman, that is PM-VIKAS, will bring a big change in the lives of crores of Vishwakarmas.”

The macroeconomics of the Budget is simple, yet not simple-minded. A classical Budget, it seeks to pump-prime the economy through autonomous investment and to engender dependent consumption demand, thereby increasing incomes, both aggregate and disposable. The Union Budget for 2023-24 is therefore: Demand, Demand, and Demand!

Be it the underwriting of food consumption of the poor with a ₹2 lakh crore allocation for free grain for the poorest, or increasing capital expenditure for crowding in capital formation by the private sector, or increasing disposable incomes of the high-consuming segment of the middle class through direct tax relief.

This Budget makes a break from the past in two ways.

First, from the time-honoured tradition of being populist ahead of elections. Sitharaman has been practical.

Second, a move away from current expenditures and transfer payments—like subsidies, a hallmark of the earlier NDA Budgets—to now focus on capital expenditure.

The capex allocation, unlike in the recent past, is likely to “crowd in” capital formation by the private sector because the gross market borrowing programme in relation to the nominal growth of the economy is lower. This will ensure that the much-needed private corporate investment is not crowded out from the financing side by excessive government borrowings.

The 3D Budget

THE GROWTH STRATEGY UNDERLYING THE BUDGET, WHICH is one of decisive reliance on the home market, must be seen to insulate the Indian economy from the impending global recession. Yet, the Budget is not insular. The underlying logic of this Budget is global.

There are three clear themes in it.

First, of course, is Decarbonisation; be it ₹35,000 crore for energy transition, or the 5 MMT of hydrogen, or concession for green mobility, this is pretty much a green Budget.

In the long run, the focus on Decarbonisation is perhaps second only to poverty alleviation in terms of ensuring sustainability of growth. For, in the short term, fossil fuel-based energy prices are the single-biggest risk to this Budget panning out as planned.

Second is Digitalisation—across the board, and not sector or industry-specific. Indeed, the Budget has been used creatively to push even the artisanal sector and seek to link it to the digital global supply chain network.

Third is Decentralisation in infrastructure, agriculture, and micro, small and medium enterprises (MSMEs) in terms of creation of new production and transactional platforms. More importantly, along with new concessions and tariffs, these will improve the operational efficiency of transmission and distribution networks, thereby responding adequately to the growing challenges of energy in India.

Empowerment

A DEFINING THEME OF NDA IN THE LAST NEARLY 10 YEARS has been its bid to pursue empowerment. Exactly why its reforms strategy since it assumed power in 2014, following an audacious win that returned a single party with a majority for the first time since 1984, has been the improvement of ease of living and ease of doing business—key ingredients for empowerment.

And in this, NDA’s driving slogan has been ‘Sabka Saath, Sabka Vikas’. A key pillar of this has been the government’s push for public goods, including physical infrastructure like roads, railways and aviation.

Alongside, it has leveraged Aadhaar to create the India (Tech) Stack to generate Digital Public Goods (DPGs) for undertaking public good at scale and has spawned a unique digital economy. Whether it be the Unified Payments Interface (UPI) or CoWin, the scale of these platforms is staggering.

This indigenous tech backbone enabled a seamless delivery of 2.2 billion Covid-19 vaccines; similarly, it has disrupted the payments business like never before—in December, transactions aggregated a little under 8 billion, of which nearly three-quarters were for sums less than ₹200.

The beauty of this unique digital economy is twofold.

First, it is based on an open digital architecture. In other words, it provides a state-of-the-art digital highway that anyone, government or private sector, can use to create innovations either for mass or niche use.

Second, it enables universal access by lowering the cost of onboarding, thereby building for inclusion and scale, something so critical for India with a population of 1.3 billion.

It also enabled what this year’s Economic Survey argued: governance with trust.

“Building trust between the government and the citizens/businesses unleashes efficiency gains through improved investor sentiment, better ease of doing business, and more effective governance. Consistent reforms have been made in this direction during the last eight years. Simplification of regulatory frameworks through reforms such as the Insolvency and Bankruptcy Code (IBC) and the Real Estate (Regulation and Development) Act (RERA) has enhanced the ease of doing business.”

The outcome of India monetising an individual’s identity, Aadhaar, and thereby democratising access to payments, health, social welfare, and most recently Covid vaccine jabs is proving to be a game-changer. Even better, an individual’s Aadhaar was linked with their mobile and bank account to generate an economic GPS as it were—something that has enabled targeted welfare spending, eliminating the middleman and cumulatively saving the exchequer nearly ₹3 lakh crore.

In her Budget speech, Sitharaman said as much: “The government’s efforts since 2014 have ensured for all citizens a better quality of living and a life of dignity. The per capita income has more than doubled to ₹1.97 lakh.”

And then she added, “The efficient implementation of many schemes, with universalisation of targeted benefits, has resulted in inclusive development.”

Listing out the ease of living achievements in the last eight years, the finance minister said that the government has provided 11.7 crore household toilets under the Swachh Bharat Mission, 9.6 crore LPG connections under Ujjwala, 47.8 crore Jan Dhan bank accounts, insurance cover for 44.6 crore persons under PM Suraksha Bima and PM Jeevan Jyoti Bima Yojana, and transfer of ₹2.2 lakh crore directly into the bank accounts of over 11.4 crore farmers under PM Kisan Samman Nidhi.

And now this experiment is poised to disrupt credit. The Account Aggregator (AA) framework got a leg-up in the Budget with Sitharaman proposing an amendment to the GST Act to allow businesses to share their GSTN data with consent. The AA is nothing but a licensed intermediary who will ensure safe exchange of data between a business and a credit institution.

The monetisation of data and democratisation of payments that we saw in the case of an individual with respect to UPI is now set to play out as credit for businesses.

The Middle Class

THE MIDDLE CLASS HAS ALWAYS BEEN THE SOURCE OF dynamism for any economy. Unlike the poor, they enjoy surplus income. Freed of the drudgery of poverty, their aspiration takes flight—which only feeds on itself.

In India, the middle class is estimated at 432 million. According to PRICE (People’s Research on the Indian Consumer Economy), the size of the middle class would nearly double to 715 million by 2030-31—in the next seven years, that is. It goes on to argue that this cohort would grow to a staggering 1 billion by 2047.

The projection is reasonable given the steep reduction in poverty achieved in the last decade. The 2022 report on global poverty released by the United Nations Development Programme (UNDP), the designated UN body to lead the fight against poverty across the world, revealed that India had successfully lifted 415 million out of poverty in 16 years ended 2021—to be sure it was a confirmation of what a section of Indian academics had been arguing.

Many among the poor—the largest cohort for the last 75 years—are escaping poverty, even as some of them are going on to ascend the social ladder to join the middle class, which in any case has got many layers and is not a homogenous entity.

A structural makeover of this magnitude is rare and has huge attendant implications—especially for the polity of the country and its consumer economy. Exactly why countries and foreign companies are queuing up to invest in India. They are betting on a future when this cohort would grow several times over and generate unprecedented purchasing power.
This year’s Union Budget tacitly acknowledges this fact and that the middle class may be coming of age—such that it no longer needs to be handheld, especially by the government. The big signal in this context was the new tax regime available to individuals.

The Capex allocation, unlike in the recent past, is likely to ‘crowd in’ capital formation by the private sector because the gross market borrowing programme in relation to the nominal growth of the economy is lower. This will ensure that the much-needed private corporate investment is not crowded out from the financing side by excessive government borrowings

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Two years ago, the finance minister had introduced an alternative tax rate structure which was sans the traditional tax incentives linked to savings. This year, she re-jigged the scheme such that it was nearly on a par with the previous income tax regime. Even better, she turned it into the default option, forcing individuals to opt for the older regime.

Whether or not it will click with income taxpayers is another issue altogether. But the subtext of the move is that, instead of the government nudging individuals to save through tax incentives, it is allowing them to make their choice. So any individual opting for the new tax structure will end up with more income on their hands—which they can deploy in an instrument of their choice.

Yes, purists, most of whom are honed in a command-control Indian economy, will baulk. But in a market-driven economy, leaving it to individual choices is the best option. Yes, the collateral gain for the finance minister is that the exchequer will be forking out fewer giveaways. And most importantly, by deploying a simple tax regime the government is also fending off future disputes over assessments.

This is particularly relevant in an economy which is seeing a rapid democratisation of access and a shrinking of the aspirational asymmetry.

For example, the study by PRICE shows that ownership of a mobile or access to the internet is no longer restricted. In the post-Jio world, the price of data has plunged (India probably provides the cheapest data in the world). This, combined with the spread of broadband even to rural India, means internet access is no longer the preserve of metros.

The National Optical Fibre Network (NOFN) to enable broadband connectivity to rural India is slowly and steadily gaining ground—after an extremely slow start since it was launched in 2011. So far, of the 262,825 gram panchayats in the country, as of January 30 this year, 1,98,408 were part of the optical fibre network.

Morgan Stanley, in its report arguing that this was India’s decade, noted as much: “Social media creates aspirations and e-commerce fulfills them. Earlier, having a large retail presence was restricted to major cities. Today, large e-commerce companies cover more than 80 per cent of pincodes, making access to products easier for smaller towns.

“The gap between urban and rural consumers is narrowing due to rising incomes (partly from direct benefit transfers) and financial penetration, as well as access to information given rising digital adoption. This, in our view, is reducing the aspirational disconnect of the past.”

Over to RBI

GIVEN THAT THE BUDGET HAS AN EXPANSIONARY FISCAL stance, more so in the structure of expenditure than the level of fiscal deficit, the attention should now shift from Raisina Hill in New Delhi to Mint Street in Mumbai. Whether or not the growth targets set out in the Budget are met will now depend on how the Reserve Bank of India (RBI), India Inc and the banking sector respond to the challenge.

RBI is already set on a path of raising interest rates and is far from done yet. With the global uncertainties, especially the impact of the Russia-Ukraine war, RBI will watch how energy prices behave and what would be the impact of these on inflation and, indeed, growth. In such a situation, there is a real risk of RBI looking to follow a conservative monetary policy. A contractionary monetary policy in the face of an expansionary fiscal policy will cause the same kind of policy schizophrenia that was the hallmark of economic policymaking in the late 1980s that eventually resulted in a macroeconomic imbalance and a balance of payments problem.

The starting point for RBI must be the gross market borrowing programme implicit in the Budget. While the nominal rate of growth is assumed to be 15 per cent, the gross market borrowing programme is budgeted to increase at around 8 per cent. Clearly, the pre-emption of resources by the government will be lower. Indeed, the moment Sitharaman announced the borrowing number, it led to a rally in government bond prices with a drop in the yield to 7.28 per cent from the levels of 7.35 per cent that it had reached consequent upon the tightening cycle of RBI. The prime focus of the credit policy will have to be on ensuring adequate liquidity in the market for the credit cycle to gain momentum and engender growth.

Under Prime Minister Narendra Modi, NDA has rewritten the entire grammar of the making of the union budget. This process culminated on February 1. Not only did Nirmala Sitharaman present a simple to understand Budget but also directly addressed women, carpenters, ironsmiths, goldsmiths, potters, sculptors, et al who for the most part of the last seven decades had got used to being on the outside of the formal economy, looking in

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India Inc MIA

EVER SINCE THE GLOBAL CRISIS IN 2008, INDIA INC HAS been in an investment funk. Part of the reason is also the fact that many overextended themselves in the previous five years and in bad times went bust—also putting the balance sheet of most public sector banks in the red, forcing them to backpedal on any fresh loan requests.

Three years ago, the Union government even pared corporate tax rates to incentivise fresh investments. But to no avail. Fresh investments continued to languish, forcing a cash-strapped government to pick up the slack. Over the last three years, they have stepped up capital spending—this year it is targeted to top ₹10 lakh crore. However, the fact is that the private sector is the largest investor and there is only so much the government can do.

It will be interesting to see whether India Inc, which roundly praised this year’s Budget, would rediscover its mojo.

A Civilisational Agenda

Indianisation of the Budget lexicon

Amrit Kaal

Context: Union Finance Minister Nirmala Sitharaman on February 1 presented “the first Budget of Amrit Kaal”. The term was first introduced by Prime Minister Narendra Modi in 2021 on Independence Day. At the time, Modi stated that Amrit Kaal’s goal was to improve the quality of life for Indians and close the development gap between rural and urban areas.

Meaning: The word “amrit” literally translates as “nectar of immortal­ity” in Sanskrit while “kaal” refers to a specific time period. In ancient Indian texts, it refers to a divine time when the portals to greater pleasure for humans, angels, and other entities open. It is regarded as the most fortu­nate time to begin any new work.

Shree Anna 

Context: 2023 has been declared by the United Nations as the International Year of the Millet and in India, the millet has been bestowed a brand new designation. While announcing the goal of positioning India as a global hub for millets, the finance minister referred to the grain as “Shree Anna”.

India is currently at the forefront of popularising millets whose consump­tion furthers nutrition, food security, and welfare of farmers, Sitharaman noted. The millet is indeed poised to be an auspicious grain for India.

Meaning: The word for “grain” in Sanskrit is “annam” and in Hindi “anna”. Meanwhile, the word “Shree” is used widely as an honorific for a person or a prefix for an object to signify respect.

Gobardhan 

Context: The finance minister outlined a scheme called GOBARd­han under which 500 new “waste to wealth” plants would be established.

Meaning: Not to be confused with “gowardhan” (“go” translates as “cows” and “vardhana” is “nourish­ment”), GOBARdhan is simply an acronym for Galvanising Organic Bio- Agro Resources Dhan. The scheme aims to support villages in safely managing their cattle waste, agricul­tural waste, and organic waste.

Saptarishi

Context: Right at the start of her speech, the finance minister outlined the seven priorities of this year’s Union Budget. These priorities, in her words, would act as “the ‘saptarishi’ guiding us through the Amrit Kaal”. The Budget’s seven sages are known by these names: inclusive development, reaching the last mile, infrastructure and investment, unleashing potential, green growth, youth power, and financial sector.

Meaning: In Hindu literature, the Saptarishi are the seven rishis or sages of ancient India. Born from the mind of Brahma, the Creator, they guide the human race through the four yugas.

Amrit Peedhi

Context: Drawing on the “Amrit Kaal” analogy, Sitharaman, in her speech, referred to the youth of India as “Amrit Peedhi”. The Budget aims to empower our youth and “help the ‘Amrit Peedhi’ realise their dreams”.

Meaning: The term roughly trans­lates as “great beings”.

Panchamrit 

Context: India is moving firmly forward for the “Panchamrit” and net-zero carbon emission by 2070 to usher in green industrial and economic transition, Sitharaman said. This Budget builds on our focus on green growth.

Meaning: Another Sanskrit term, “panchamrit” refers to the five nectar elements. Modi had first alluded to it when he had outlined his five-point climate campaign agenda at COP-26. The “Pancham­rit”, he said, included increasing India’s non-fossil energy capacity to 500 GW by 2030 and reducing its total projected carbon emissions by 1 billion tonnes.

Mishti

Context: Under this scheme, the government will take up mangrove plantation along the coastline and on salt pan lands, wherever feasible, through convergence between MGNREGA, the CAMPA fund and other sources.

Meaning: “Mishti” means sweet­meats in Bengali, but the scheme that Sitharaman dished out refers to the Mangrove Initiative for Shoreline Habitats and Tangible Income (MISHTI).

Vishwarkarma

Context: An estimated 7 million artisans mostly in the informal economy were formally acknowl­edged in the Budget.

Meaning: Artisans and crafts people who work with their hands.

PM-Pranam

Context: Sitharaman announced that the Pradhan Mantri-Promo­tion of Alternate Nutrients for Agriculture Management Yojana (PM-PRANAM) will be launched to incentivise states to promote alter­native fertilisers. The move would help to encourage states to reduce the use of fertilisers.

Meaning: Salute

Udan 

Context: The scheme known as UDAN (Ude Desh Ka Aam Nagrik) was launched in April 2017 to make air travel affordable and widespread. It is basically a regional airport development programme in which the aim is to upgrade the underserviced air routes. Through this scheme, air travel will be made affordable and small towns will be connected with the big cities. The first flight under the scheme took off in 2017.

Meaning: Flight

Shakti

Context: Scheme to Harness and Allocate Koyla Transparently in In­dia (SHAKTI) is a policy designated by the Modi government for the allocation of coal among thermal power plants in a transparent and objective manner. The aim of this scheme is to ensure the availability of coal to all the thermal power plants in India, in a way that is trans­parent and objective, according to the Prasar Bharati website.

Meaning: Power

Sagar

Context: SAGAR (Security and Growth for All in the Region) is an acronym used by the Modi government for the country’s vision and geopolitical framework of maritime cooperation in the Indian Ocean Region.

Meaning: “Sagar” means “ocean” or “sea”. Since the first usage of the phrase in 2015 at Port Louis by Modi, the term has been adapted to include more elements such as linkages with the Indo- Pacific region.

Usttad 

Context: Launched in May 2015, Upgrading Skills and Training in Traditional Arts/Crafts for Develop­ment (USTTAD) was the NDA government’s ambitious scheme for minorities. It aimed at upgrading skills and promotion of artisans. The scheme is linked to the ‘Make in India’ campaign and seeks to help weavers and artisans connect with buyers both nationally as well as internationally.

Meaning: Maestro

Gian

Context: Launched in November 2015, the aim of Global Initiative of Academic Networks (GIAN) is to boost the quality of higher education in India. The initiative is to improve the quality of higher education through international collaboration.

Meaning: Knowledge

Pragati

Context: In March 2015, Modi launched his ambitious multipur­pose and multi-modal platform PRAGATI which is aimed at ad­dressing the common man’s griev­ances and monitoring important programmes and projects.

Meaning: Progress/Proactive

Prashad

Context: The Pilgrimage Reju­venation and Spiritual, Heritage Augmentation Drive (PRASAD) scheme was introduced in 2015. The scheme aimed at pilgrim­age destinations’ infrastructure development, such as entry points (road, rail and water transport), last-mile connectivity, basic tour­ism facilities like information/in­terpretation centres, ATM/money exchange, eco-friendly modes of transport, lighting and illumination with renewable sources of energy, parking, drinking water, toilets, cloak rooms, waiting rooms, first-aid centres, craft bazars /haats/ souvenir shops/ cafeteria, rain shelters, telecom facilities, internet connectivity, etc.

Meaning: A devotional offering to a deity

Continuity with Change

The BJP-led National Democratic Alliance (NDA) and the Congress-led United Progressive Alliance (UPA) are bitter political rivals and ideological opposites. Hence, one should logically expect a unique style quotient when it comes to designing the Union Budget. Surprisingly, there’s none. There is more continuity in policy than either of these two regimes will let on. However, they differ significantly in the political economy each has pursued in power. While both employ the same means, the end that each desires is fundamentally different.

Reform Mindset

Congress can justifiably claim to be the original author of economic reforms in India—although during their just concluded foot-march across the country they may be claiming the contrary, reflecting the political schizophrenia that afflicts parties when they are out of power.

It is not just because of the big burst of reforms carried out in 1991 by the Congress government led by Prime Minister PV Narasimha Rao. The impetus to change happened earlier, though most commentators erroneously claim that reforms began with the Rao regime.

The ideological flip-flop—from a socialist mindset to a more market-friendly approach—was seeded subtly by Prime Minister Indira Gandhi when she returned to power in 1980. At that point of time the country had just been hit by another external sector crisis in the aftermath of the second oil price shock—and the situation was rapidly deteriorating.

The incoming regime realised that it would have no option but to approach the International Monetary Fund (IMF) for a bailout. The $6 billion loan came through in November 1981 but it included conditionalities which would require the economy to pivot to a more market-driven economy. Indira Gandhi adroitly dealt with the underlying political challenge of accepting these conditionalities by pre-emptively inking these reforms into the Sixth (Five-Year) Plan document prepared by the Planning Commission (shepherded by its Member Secretary Manmohan Singh).

This meant fiscal reforms, a revamp of public sector undertakings, reductions in import duties and delicensing of domestic industry—a legacy of the socialist era—were now part of the policy strategy for the next phase of growth.

Another story is that Indira Gandhi was quick to avoid the actual implementation by backending the conditionalities and prepaying the loan before it kicked in. However, the reforms cat was out of the bag. Her son, Rajiv Gandhi, who took over as prime minister in 1984, initiated several of these reform measures.

The public sector reorganisation was initiated by spinning off the telecom circles in Mumbai and Delhi into separate corporate entities under Mahanagar Telephone Nigam Ltd in 1987. The addition of “public sector disinvestment” to the policy lexicon came later in
Yashwant Sinha’s aborted Budget.

UPA vs NDA

Fast forward to the UPA era and you notice a pick-up in reforms—though, true to the Congress DNA, the ideological accent was on tackling poverty through entitlement. The style quotient therefore continued to be one of reforms by stealth—a disastrous fallout of which was to mask the fiscal arithmetic by taking items off the books.

In 2014, NDA inherited a macroeconomic mess—inflation was rampant, growth was slowing and, worse, the fiscal deficit was running riot.

However on the upside, UPA had left behind a terrific legacy in Aadhaar—the 12-digit unique identity issued to all residents of India—and its initial applications, including the ideas of Direct Benefit Transfer (DBT) and the India (Technology) Stack.

The new government was quick to grab and run with the good things, especially Aadhaar, and thereby established continuity with change. NDA soon discovered that the successful application of Aadhaar to do public good could also enable an ideological pivot from entitlement to empowerment—teaching people how to fish rather than handing them the fish.

Simultaneously, it pushed the idea of financial inclusion by getting banks to offer a no-frills account—Jan Dhan. Remember that in 2010, 430 million Indians did not own a bank account and till recently 571 million Indians had never availed of any form of formal credit.

Combined with Aadhaar and the mobile phone, Jan Dhan enabled the government to successfully triangulate the beneficiary, providing an economic GPS as it were, to target welfare spending—savings on account of this cumulatively add up to nearly
₹3 lakh crore.

It went a step farther to reinvent the fight against poverty by targeting the basic deprivations—health, education, and standard of living—that cause poverty. This manifested in the big push for electricity, housing, cooking gas, toilets and drinking water for all.

Pro-Poor, Pro-Business

Not surprisingly the decline in poverty levels, visible in the first decade of this millennium, accelerated—something chronicled recently by the United Nations Development Programme (UNDP).

Alongside, the applications of the India Stack democratised access and began to disrupt payments, enabled FASTag (eliminating holdups/delays at toll booths), credit and ecommerce. Together with structural reforms—as with the introduction of the Goods and Services Tax (GST), ease of doing business, and cuts in corporate tax rates—the formalisation of the economy crossed a tipping point.

Benefits of change began to accrue to many more, irrespective of economic class. Overnight there were more people inside the formal economy rather than being outside looking in—creating an important cohort of stakeholders.

The ability to deploy a homegrown tech stack for doing public good at scale (one billion-plus) had a huge upside: it created an unprecedented sense of self-belief.

This ‘yes, we can’ attitude manifested in the fightback against the Covid-19 pandemic; India was able to indigenously manufacture the vaccine and undertake the seamless rollout of 2 billion jabs—a global record—using a digital backbone created from the tech stack.

What this also did for NDA was that it allowed the regime to build fresh social capital and repair the trust quotient with the people who are also the electorate. Undoubtedly, it created the political space for NDA—exactly how it has walked the tightrope of its seemingly contradictory slogan: “Pro-poor, Pro-business”.

In the final analysis, it is clear then that indeed there is amazing continuity in economic thought between UPA and NDA. While the former hedged on undertaking dramatic reforms, preferring not to rock the boat, NDA has made disruption its dharma.

About The Author

Haseeb Drabu

Haseeb Drabu is an economist and the former finance minister of Jammu and Kashmir

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Anil Padmanabhan

Anil Padmanabhan is a Delhi-based journalist who writes on the intersection of politics and economics in his weekly column ‘Capital Calculus’

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