Cover Story: Budget 2018

The Equaliser

Modi has used the Union Budget to create the architecture of an India where India and Bharat can begin to complement each other

Swapan Dasgupta Swapan Dasgupta | 02 Feb, 2018

TWO DAYS BEFORE he relinquished his post in November 1905, Lord Curzon—arguably the most cerebral, accomplished but also inflexible Viceroys of India—delivered a remarkably candid speech at the Byculla Club in Bombay. He dwelt on the infuriating challenges of governing a country as vast and complex as India. The Viceroy, observed Curzon, “must be prepared to speak about everything, and often about nothing. He is expected to preserve temples, to keep the currency steady, to satisfy third- class passengers, to patronise race meetings, to make Bombay and Calcutta each think that it is the capital city of India, and to purify the police… If he does not reform everything that is wrong, he is told that he is doing too little; if he reforms anything at all, that he is doing too much.”

The context may be different and the political systems vastly dissimilar, but there are moments when the Prime Minister of India, elected on the back of a popular mandate, must empathise with Lord Curzon’s exasperation with popular expectations of rulers. This is particularly true of Narendra Modi, the Prime Minister heading the country’s first single-party majority Government after Rajiv Gandhi. Whereas the bar on expectations from a fragile coalition government, buffeted by conflicting pressures, is often set low, a majority government is popularly believed to have a magic wand. In the case of Modi, the expectations are dizzying. Having been elected on the strength of being a performer and the promise of ushering in ‘achche din’ (good times)—the clever coinage of a copywriter—Modi is often perceived as the man who must have all the answers and all the solutions. Even the remotest sign of tentativeness has the potential of transforming hero worship into disappointment, frustration and even anger.

The Modi Government got a foretaste of the volatility of the electorate on the morning of Finance Minister Arun Jaitley’s fifth Budget when the ruling Bharatiya Janata Party was roundly defeated in three by-elections in Rajasthan—a state where the saffron party had won all Lok Sabha seats in 2014 and registered a conclusive victory in the Assembly election a year earlier. Arguably, by-poll results in one corner of India shouldn’t be over-interpreted, particularly when the past 12 months have witnessed the BJP winning spectacularly in the all-important state of Uttar Pradesh, handsomely in Himachal Pradesh, polling 49 per cent of the popular vote in Gujarat (although suffering sub- regional setbacks), cobbling together a government in Manipur and Goa, and re-establishing its ties with Nitish Kumar in Bihar. Yet, the Rajasthan defeats did add to the anxieties of a government that has been affected—not so much by a buoyant opposition or the never-ending carping of media critics—but the growing talk of widespread rural distress. The by-election results seemed a small confirmation of this phenomenon.

Not that either the Prime Minister or Finance Minister needed such electoral setbacks to be forced into knee-jerk reactions. If there is one facet of Prime Minister Modi that fellow politicians (including those in the BJP) have found unsettling, it is his unwavering approach. It may sound excessively adulatory, but Modi’s attitude to politics is determined by a fixity of purpose. He is inclined to chart a course and unwilling to let politics derail him. On the contrary, he is convinced that popular backing will inevitably follow if the road taken is right. Unlike Margaret Thatcher who too had these attributes, Modi, however, is not ideological in the political sense. He has a commitment to India’s greatness which is unswerving, and is willing to run an obstacle race to ensure it happens. He is not afraid of minefields along the way.

Yet, this determination is coupled by a flexibility of approach, a hallmark of Gujarat’s famed adaptability. By instinct, Modi is not a statist and is inclined towards community self-help. However, unlike Thatcher whose life’s mission was to roll back the frontiers of the state, Modi is disposed towards using the state in the fulfilment of a larger objective. In 2014, on assuming power, the stalwarts of the Modi Government genuinely believed that a blend of political stability, honesty of approach and a set of broad market-friendly reforms would be enough to trigger private sector investment to facilitate rapid economic growth. Unfortunately for him, it became clear in the first six months that India’s private sector was too beset with its own problems (not least of which was a sustained exposure to cronyism) to take advantage of a favourable business environment. The Modi Government’s over-dependence on public investment and foreign direct investment was a consequence of a quick realisation that India’s corporate sector lacked the will and audacity to rise to the challenge. Once convinced that public investment had to be at the forefront of the effort, Modi turned his energies to ensuring the relative efficiency of the state.

Likewise, Modi has had an aversion to the culture of freebies and handouts, the hallmark of the erstwhile UPA Government that in turn was disproportionately influenced by Sonia Gandhi’s NGO-oriented National Advisory Council. During the 2007 Gujarat Assembly election, Modi resisted all pressure from within the BJP to either write off the dues of those farmers that had defaulted on electricity bills or withdraw cases against those charged with theft of power. In his view, the State Electricity Board had just about been nursed back to modest profitability and it would be disastrous if bad practices were condoned for the sake of political expediency.

This example acquires relevance in the context of some approaches of the Modi Government in coping with the fall in agricultural income as a result of the dip in prices of agricultural commodities. In 2009, the UPA Government had been confronted with a broadly similar problem, with farmer suicides rampant in Maharashtra and Andhra Pradesh. Its approach was to write off all farmer loans, a measure that proved a great success electorally. So far, despite pressure, the Modi Government has resisted all attempts to provide a short-term, albeit politically rewarding, solution to the problem of rural distress. On the contrary, this Budget has attempted to create a long-term institutional framework for agricultural subsidies through the implementation of the MS Swaminathan Committee Report. By fixing Minimum Support Prices (MSPs) at 1.5 times the cost of production, a recurring demand of farmer organisations, it has tried to bring some order into the system.

What the Modi Government may have successfully done with the announcement of the Ayushman Bharat Yojana is to put healthcare firmly on the political agenda. There will now be intense pressure on the political system to not merely trigger aspirations, but also deliver a health system that is seen to be part of a caring society

Whether this approach—which doesn’t base itself on discretion but on other measurable criteria that will be worked out by the Niti Aayog, the Centre and state governments—will contribute to fulfilling the BJP manifesto promise of doubling farmer incomes by 2022 will be keenly watched. According to economist Ashok Gulati, if farmer demands are fully met, the MSP of paddy and soyabean will increase by 44 per cent, maize by 47 per cent, groundnut by 38 per cent and long-staple cotton by 52 per cent. What is reassuring is that this proposed MSP accretion seems a step for the creation of a National Agriculture Market. Predictably, this is not going to happen overnight, but the seeds have been sown and pressure from below could result in the gradual erosion of restrictive practices that have marred Indian agriculture.

The desire to blend welfare with efficiency is a hallmark of the Modi Government that finds expression in the most audacious initiative of this Budget—the Ayushman Bharat Yojana (ABY), billed as ‘the world’s largest healthcare programme’. In scale, the ABY is quite staggering and will include nearly half the population of India. Its costs will be substantially met by the 1 per cent healthcare cess on Income Tax and will cover hospitalisation and other medical costs of individuals upto an annual Rs 5 lakh, a significant amount that factors in market costs. Although medical care can be availed of in government hospitals—but not exclusively so—its administration will not be vested in the hands of the state. Instead, it is likely that the Government will pay medical insurance premia to a gigantic insurance company that will be formed by the merger of three general insurance companies in the public sector.

The details of the ABY have not yet been announced, but it is quite clear that the Prime Minister is intent on using the scheme to build an important pillar of an Indian welfare state. If the rollout, which also involves the upgradation of government hospitals in district headquarters and the streamlining of the Medical Council of India, is successful, it will become the basis of a universal healthcare system in India. A senior minister tells me that if the costs of the present programme can be met by the imposition of a 1 per cent dedicated cess, there is no reason why a 2 per cent cess won’t be able to convert the ABY into a universal healthcare system.

That, however, is jumping the gun. If the ABY is to produce the type of electoral returns that Modi and BJP President Amit Shah hope it will, there would have to be a dramatic expansion and upgradation of hospital services to cater to patients who will no longer be satisfied by the dismal facilities that are to be found in most government hospitals, not least in district and subdivisional towns.

What the Modi Government may have successfully done with the announcement of the ABY is to put healthcare firmly on the political agenda. There will now be intense pressure on the political system to not merely trigger aspirations, but also deliver a health system that is seen to be part of a caring society.

In his intervention after the Budget, the Prime Minister spoke of the need to supplement the ‘ease of doing business’ with the ‘ease of living’. Huge investments in infrastructure, particularly the spate of road construction, will certainly be a factor in this and directly or indirectly contribute to more economic activity and, consequently, more livelihood opportunities. In this context, two thrust areas of the Government are significant.

First, the Ujjwala scheme to create a smokeless kitchen by offering free gas connections to women below the poverty line has been a great success. According to the Economic Survey, a total of 30.5 million gas connections had been released till October 31st, 2017. What is more encouraging is that some 70 per cent of those women provided with the initial connection have gone in for refills, suggesting that the use of cooking gas over more traditional stoves may gradually end up being part of the household drill. The Budget has increased the target of beneficiaries from the still-unrealised 50 to 80 million. If even 70 to 80 per cent of this target is met, it will be a big contribution to the ‘ease of living’ of women.

Secondly, the Government’s bid to secure full rural electrification by 2019 has had encouraging results. As on April 1st, 2015, there were 18,542 villages in India without power connections. By November 30th, 2017, 15,183 of these villages had grid-supplied power (and 1,052 villages were found to be uninhabited). The remaining 2,217 villages are expected to be connected by May 2018.

The Saubhagya Yojana took this universal electrification a step further by ensuring a light and fan installation in all poor rural households free of charge. The Budget has set aside Rs 16,000 crore for this scheme. If carried out with efficiency and commitment, this initiative, apart from yielding political dividends, is certain to have a multiplier effect on the entire economy.

Over the past few years, but particularly after the BJP’s 2015 defeats in Bihar and Delhi, Modi has been trying to change the social character of the party in a gradual and non-demonstrative way. The social centre of gravity of the BJP was always the lower middle-classes, with traders exercising a disproportionate influence. Since he assumed charge as Prime Minister, Modi has been working relentlessly to push the centre of gravity further down the economic ladder. In particular, an exceptional amount of attention has been paid to the creation of a political constituency of the poor—an approach that fetched returns in Uttar Pradesh. Having initiated deep structural reforms in the more ‘modern’ sectors of the economy and having ensured that corruption and leakages from government schemes have fallen dramatically through the use of technology, Modi has used the 2018 Union Budget to create the architecture of an India where India and Bharat can begin to complement each other.

The task is daunting and its foremost challenge is the impatience of an electorate for instant returns. Politically, in the coming year, he has to convince people that India is on the right track under his leadership and that there will truly be achche din if they can hold their nerve.