Budget 2020: The Right Course

ONE BIG PROBLEM OUTSIDERS HAVE IN assessing Indian politics is the relative absence of a clear-cut Right-Left or even liberal-conservative distinction. Part of the problem arises because these terms have no equivalents in Indian languages and translations are usually contrived. Consequently, a favoured distinction, using popular Left terminology, is the one between progressive and reactionary. Apart from being subjective, this binary is extremely vague: one person’s progressive is another’s reactionary. In recent years, the definition of progressive has been further complicated because of its equation with modernity which, in some influential circles, has ranged between ideas fashionable in the West and more indigenous belief systems.

The problem has been further compounded by the schism in economic policy-making that followed the steady liberalisation of the Indian economy after 1991. Prior to then Finance Minister Manmohan Singh’s landmark Budget—which the Congress tried to spin as an evolution of Nehruvian thought—the consensus in India centred on the need for an interventionist state. It was believed, much in line with the fashion in Europe, though not the US—that the post-colonial challenges in an impoverished country such as India could only be handled by state intervention. Jawaharlal Nehru wasn’t particularly enamoured of the dictatorial control exercised by the communist parties in the socialist bloc. However, he believed that the state run by a technocratic elite could combine rapid industrialisation and poverty alleviation. Nehru also entertained a deep disdain for India’s moneyed classes and saw them as nothing better than blood-sucking leeches out to make a quick buck of people’s sufferings.

Nehru’s distaste for the private sector extended to his daughter Indira Gandhi who made life absolutely hell for the small capitalist class in India. The draconian licensing laws and the punitive income tax levied on the wealthy dampened all appetite for genuine entrepreneurship and was undoubtedly an important factor in the brain drain of professionals and scientists from the country.

In the normal course, the overdose of socialism should have witnessed the rise of an alternative that argued for exactly an opposite approach. However, thanks to the successful political messaging of the Congress and the Left, free enterprise and market economics became electoral liabilities. This was particularly so in the decade after 1971 when parties such as the Congress (O), Swatantra and the Jana Sangh suffered grievously for opposing bank nationalism and other moves to extend state control of the economy. The Swatantra Party, arguably the only political party that argued explicitly in favour of free enterprise, even went out of business by 1974. Even the short-lived Janata Party Government tried to outdo Indira Gandhi in pressing for socialist solutions. George Fernandes gave marching orders to Coca-Cola and IBM and Charan Singh’s Budget taxed all ‘luxury’ items—daily necessities in the West—mercilessly.

When it split from the Janata Party in 1980, the Bharatiya Janata Party (BJP) embraced something called Gandhian socialism which, in effect, meant targeted state-sponsored welfare programmes for the poorest of the poor. This Gandhian socialism fitted uneasily with the BJP’s belief that some deregulation was the need of the hour. However, it did correspond with facets of Deendayal Upadhyaya’s notion of antyodaya.

If self-image is any indication, the BJP has consciously shied away from projecting itself as a party of the Right. Atal Bihari Vajpayee, never very comfortable with questions centred on the economy, always saw the Jana Sangh/BJP as a party of the centre. The party’s self-identity was based on nationalism and its stand on economic questions was always based on ‘national interests’—an article of faith that could be used for a multitude of purposes. Thus, after the Congress hesitantly turned towards liberalisation, the BJP sets its sights against globalisation. The party launched a vigorous movement against India joining the World Trade Organization, sometimes using arguments that made it indistinguishable from the early adherents of the Greens in Europe. The swadeshi current that assumed importance within the party at this juncture became synonymous with the defence of Indian industry against foreign competition.

Despite this ideological baggage, the Vajpayee Government of 1998-2004 did take certain decisive steps that identified it with the conventional Right globally. Among the defining characteristics of the coalition government headed by Vajpayee were fiscal responsibility, opening the doors to foreign investment, lower taxes and lower interest rates and, above all, privatisation of select public sector units. The disinvestment programme Vajpayee initiated and which his ministers Arun Jaitley and Arun Shourie carried through was unquestionably the most controversial. It incurred the opposition of a large section of the Sangh Parivar, particularly the Bharatiya Mazdoor Sangh and its charismatic leader Dattopant Thengadi. After the BJP lost the 2004 General Election, the party’s internal assessment blamed the Vajpayee Government’s privatisation policy for leaving the BJP’s middle-class supporters dispirited.

As Chief Minister of Gujarat, Narendra Modi possessed a functional autonomy that allowed him to cater to the specific interests of Gujarat, a state where there was no ingrained wariness of business. Rather than travel the familiar route of welfare schemes, he focussed on improving the efficiency of state delivery and cutting down red tape. He sought to create an impression among the people by tackling the menace of corruption through curtailment of discretionary powers of politicians and officials. Additionally, the state government made full use of technology to usher greater transparency, particularly in the matter of transfers and postings—hitherto a big source of corruption.

Under Modi, the Gujarat government made a definite mark among opinion-makers and acquired a reputation as one of the most business-friendly state governments. This wasn’t done by extending tax concessions and sops. What was instead done was to ensure that potential investors got their proposed projects cleared with remarkable speed and without having to run from pillar to post. This quick decision-making, plus the relative absence of labour militancy in the state, was a big factor in Modi being able to persuade Tata Motors to shift its Nano manufacturing plant from West Bengal, where it was in the eye of a huge political storm, to Gujarat. This was a big feather in the cap for Modi and it catapulted him to the status of the reformer India needed, particularly at a time the United Progressive Alliance (UPA) II Government was in the throes of a severe policy paralysis.

The energy that Modi brought to the functioning of the Gujarat government was also very much in evidence in his early days as Prime Minister. The commitment to dramatically improve the ease of doing business and the Make in India programme, not to mention the deregulation of defence production, made the Government seem purposeful. Although there was a setback over land acquisition, it was clear that the Modi Government hadn’t deviated from its basic commitment to improve India’s economic capacity, the basic prerequisite for the country becoming a big power. The war on corruption and tax avoidance, in which demonetisation and the introduction of the Goods and Services Tax (GST) were major elements, were politically difficult projects. But the mere fact that these were undertaken—despite difficulties and some mishaps along the way—suggested that economic capacity-building remained on top of the agenda.

The criticism levelled against the Modi Government was three-fold. At one level it was suggested that the approach of the Government was essentially incremental and managerial in character. The belief that the Government was merely tinkering rather than working to a bigger plan was recurrent. Second, there were recurrent complaints that the Modi Government’s reliance on the state machinery went against its commitment to ‘minimum government, maximum governance’. Some of these criticisms were unfair and were born out of the single-minded focus on preventing tax avoidance, a step that necessarily involved using the administration. However, among the investing classes, they were recurrent. Finally, it was suggested by critics that the Government was insufficiently attentive to bad news. There was evidence of a creeping economic slowdown since the beginning of 2019. The opposition blamed it on demonetisation and the crippling effects of GST on the informal and small-scale sectors. The Government, on the other hand, stressed the international dimensions of the slowdown. Whatever the reasons, it was argued—not least by economists who had their own version of what needed to be done—that the Government was living in denial. My own guess is that the General Election campaign necessarily ruled out any honest debate on the subject.

It is in this backdrop of economic slowdown, disquiet among domestic investors over the Government’s commitment to a revival ‘package’ and a political stir over the Citizenship (Amendment) Act that Nirmala Sitharaman’s second Budget should be viewed.
IT IS FOR ECONOMISTS AND MEDIA PUNDITS TO DECIDE the extent to which Budget 2020 corresponded to the art of the possible. The Modi Government broadly adhered to the norms of fiscal responsibility, despite pressure both from within and without to spend as if there is no tomorrow. A 0.5 per cent slippage from last year isn’t such a big deal given the slowdown that India has confronted. The Government has also been remarkably successful in keeping inflation under check, so much so that mehñgai has disappeared from the post-Modi political lexicon. It is also the case that the Government’s delivery on its ambitious schemes has been far more targeted than those of the preceding governments. This is partly because technology has been put to better use by the present Government and partly because private gratification does not feature among the Government’s priorities. Politically, there was nothing in the Budget that provoked intense opposition—even the new tax code was deemed to be voluntary—although criticisms of it being insipid and unimaginative were recurrent, particularly in the media.

In my view, the real significance of this year’s Budget speech was the clear elaboration of an economic philosophy, something that both the BJP and the Modi Government had hitherto shied away from. Even if quoting from either Kalidasa or the Tamil woman saint poet Aauvaiyar on economic wisdom does not secure brownie points from those more accustomed to academic citations involving Nobel prize-winning economists or even Adam Smith and David Ricardo, the Finance Minister did succeed in getting her basic ideas across.
First, the Budget and the Economic Survey, which set the official context for its presentation, have explicitly committed the Government to the virtues of wealth creation and entrepreneurship. This is a marked departure from the benevolent, paternalistic state that was idealised by both the feudal order and the Nehruvians. More than anything else, it implies, hopefully, that the revenue models of the Government in future will not be geared towards extorting the wealth creators into either parting with all their earnings or devising innovative strategies of tax avoidance and evasion. There has been increasing chatter over high net-worth individuals becoming tax exiles. Maybe this will stop as wealth creators are accorded a dignity they never secured from the Government. A taxpayers’ charter has also been promised.

Second, the Government has recognised the wisdom of fuelling consumer spending by allowing individuals and their families to have more money in their pockets. The philosophy of lower taxes as a means of spurring demand has been enshrined as philosophy. Maybe in time it will occupy a higher place in the intellectual imagination than the belief that what matters is reckless government spending. We will know that the principle has become a part of the BJP’s political belief system when government expenditure and the size of government are also curtailed. Capping it all is the commitment to make the relationship between government and citizens one of trust.

Third, by identifying the prosperity of India in previous centuries with both the country’s manufactures and trade, the Government has underlined the importance of being a part of the global economy. This implies that Make in India is not a slogan for protectionism but an encouragement to greater competitiveness. Maybe Modi may have some problem explaining this to some members of his parivar for whom India is a byword for intellectual and material self-sufficiency, but this prudent interpretation of swadeshi as implying the essence of the Indian experience is welcome. In the Left lexicon, vyapari is a term of abuse; the BJP should respect it.

Finally, read with the Economic Survey that is quite explicit in its endorsement of private enterprise over state control, it is clear that the Modi Government has quite a different perception of what constitutes the ‘commanding heights’ of India’s 21st century economy. The commitment to the privatisation of Air India was reaffirmed a few days before the Budget and Sitharaman broke new ground by endorsing schemes to open up railway passenger routes to private partnership and offering a slice of the Life Insurance Corporation of India equity to the capital markets. Earlier governments have divested because they needed to pay the bills. What the Modi Government has indicated is that transferring assets to the private sector is good for the country. It is also a more efficient way of managing national resources. Traces of this philosophy were evident in the Budgets of the Vajpayee Government and even in the Budget speeches of Arun Jaitley. But this is probably the first time the approach has been linked to a larger economic philosophy.

Modi has often been portrayed as a man who is a master of expediency and who, at the same time, lacks any coherent political ideology beyond Nation First. This has also been a charge against the BJP. In Budget 2020, we have witnessed the first draft of the principles that should govern the BJP’s approach to economic policy. Let us hope it does not remain a mere draft and is injected into the bloodstream of the BJP.

GDP growthNarendra ModiNirmala SitharamanOpenomics 2020Union Budget 2020