Openomics: Budget 2017

Modi’s Moderniser

Arun Jaitley and the making of an ethical India

Swapan Dasgupta Swapan Dasgupta | 02 Feb, 2017

The Prime Minister is known to be inspired by Swami Vivekananda’s vision of a resurgent Bharat Mata where poverty and caste indignities are buried and where India becomes a world power on the strength of its spiritual and moral commitments. To this vision, Modi has added the necessity of robust economic development and capacity building to escape the indignities of Third World existence. The attempt to create a Swachh India both in terms of physical surroundings and the quality of public life is a feature of that endeavour

THE UNION BUDGET is one of the highlights of the political calendar in a democracy. It is also one of the most intensely political events when a government blends its political orientation with hard choices involving different, and sometimes conflicting, claims on the state exchequer. Unless a country is overwhelmed by crisis—whether political or economic—a Budget constitutes a statement of direction. This is even more so in a country such as India where the idea of an interventionist, paternalistic sarkar is deeply embedded in the national imagination.

It was, therefore, a great surprise when, on February 1st, barely hours after Finance Minister Arun Jaitley had finished his inordinately long speech—interspersed with Hindi poetry he was never quite comfortable reciting but which drew applause from fellow MPs—I found myself on a TV panel where praise for the Budget was coupled with the observation: “It was, thankfully, not a political Budget.”

The panellists were, I believe, horribly wrong. If you view politics as a crude vote-for-me exercise that involves showering targeted groups with freebies and entitlements, as used to be done in the bad old days of socialism, Jaitley’s speech was clearly non-political. However, if politics still retains a shred of nobility and national purpose, we saw large elements of it in this year’s Union Budget.

Trust and a willingness to play by the rule book are very important in establishing the moral fabric of a country. It is a tragedy that this emphasis on character building was discarded after Independence as the focus shifted to identity and entitlements

At the risk of being charged with hyperbole, I must say that my admiration for Prime Minister Narendra Modi has increased exponentially over the past six months. Far from being tamed by the ‘system’ and the comforting environment of Lutyens’ Delhi—a zone that was designed to both awe and co-opt—Modi has not lost the fire in his belly. First there was the ‘surgical strike’ on terror camps across the Line of Control— an act of audacity that drew wild applause from the citizenry but invited a great deal of tut-tutting from the punditry. Then there was the demonetisation of November 8th, another extremely high-risk strategy aimed at striking at the very core of the black money menace. Once again the punditry— in this case, the assembled ranks of economists who prefer predictable, time-tested approaches—threw up their hands in horror. From parliamentary opposition to the media, the outrage was fierce. But Modi stood his ground, not yielding on the fundamentals but always willing to finetune his tactics depending on responses from the ground. The impact of demonetisation, as this year’s refreshingly frank Economic Survey conceded, will take years to be fully gauged—and much will depend on how adroitly the Government follows through. However, one thing has become clear: Modi’s war against corruption isn’t a cosmetic exercise aimed at winning a state election, but driven by a sense of mission.

To even suggest that a political leader is blessed with a missionary zeal that goes beyond immediate political calculations is calculated to invite sniggers, particularly from the commentariat. Cynicism has become so deeply ingrained in the national imagination that it has become nearly impossible for educated Indians to believe that something as basic and non-contentious, but at the same time very noble, such as the Swachh Bharat campaign, is motivated by a higher ideal. In the case of demonetisation, many political buffs and even members of the BJP could not comprehend the logic of a move that hit small traders and businessmen—traditionally the most loyal supporters of a BJP that has seen many ups and downs—the hardest, at least in the short run. True, they were collateral victims in a move that was aimed, above all, at injecting ethics and transparency in public life. But no Indian politician—at least not since Mahatma Gandhi gave mass politics a moral quotient—has risked the immediate in pursuit of a loftier goal.

This Budget was in many ways a predictably dreary affair: a few generous outlays on crucial sectors that warranted a leg up, a little tweaking of the tax rates and a quota of platitudes. But there was one thing that stood out: an attempt to codify political funding that took into account ground realities.

The impact of demonetisation, as the Economic Survey of 2017 conceded, will take years to be fully gauged. One thing has become clear: Modi’s war against corruption isn’t a cosmetic exercise aimed at winning a state election, but driven by a sense of mission

For as long as anyone can remember, it has been said that the underground economy has thrived on political patronage. People seeking advantage and those who wanted to cover-up some wrongdoing have traditionally been generous donors to political parties. Audited accounts suggested that between 65 and 75 per cent of the income of parties came from anonymous cash donations. This is not including contributions to individual war chests that were entirely cash donations. Maybe the Congress crafted this system of political funding, a system that, given its long spell in power, proved tremendously advantageous. However, as political competition intensified, particularly in the states, other parties established funding networks that mirrored the one established by the Congress. Even the new outfits born out of anti-corruption movements haven’t been entirely above board in their fund collection patterns.

The net effect of this political practice was two-fold.

First, political activists have become accustomed to easy money, particularly during elections. The venality has spread to sections of the electorate that now both expect and demand to be paid for their support. Even the media has succumbed to this lure of tax-free cash. Any politician who has contested elections, particularly Lok Sabha polls where constituencies are vast and unmanageable, will testify to the extortionist demands of a media whose sense of what is news often depends on a consideration. The global outrage against ideologically driven ‘Fake News’ was preceded in India by ‘Paid News’, a phenomenon that is hard to detect and impossible to check.

Second, the growing cost of contesting elections effectively made political parties completely dependent on large donations. This in turn influenced the hierarchies inside them. In the sphere of governance, decision-making was wilfully injected with a large discretionary element to cater to those who had the ability to either bankroll politics or enhance personal fortunes.

It is unlikely that the Modi Government’s initiatives will lead to total transparency and cleansing of political life. The rot is far too deep for such a profound change to take place by legislative fiat alone. Already there are those who are planning innovative ways by which the ceiling of Rs 2,000 in individual cash donations can be circumvented. Who is to stop private donations in cash to individuals which can then be channelled into politics? We may also find that the cash restrictions lead to many politicians suddenly discovering the virtues of smaller, regional parties. I am sure that ways will also be found to undermine the effectiveness of the election bonds proposed in the Budget. Indeed, those who complain that the reforms mooted on February 1st don’t go far enough also include those who don’t want to upset the cosy status quo.

This Budget was in many ways a predictably dreary affair: a few generous outlays on crucial sectors, a little tweaking of the tax rates and a quota of platitudes. But one thing stood out: an attempt to codify political funding that took into account ground realities

There will be a demand for the state funding of elections. In theory, this seems a legitimate call for a level playing field. In reality, given the proclivities of a spoilt political class, this will translate into getting money from multiple sources and enjoying the best of both worlds.

In his Budget speech, the Finance Minister released statistics that clearly suggest that tax compliance is, by and large, the prerogative of the salaried class in government service and the organised sector. What is shocking is how few of those who are independent businesses or in the professions actually bother to declare their real incomes and pay taxes. Part of this stems from the lack of state penetration—which isn’t necessarily a bad thing. But far more important are the habits inculcated during the bad days of Congress socialism when personal income tax rates crossed 90 per cent—an absurdity that naturally encouraged concealment of real incomes.

Bringing taxation down to the realistic levels of the present and making life difficult for non-taxpayers are important steps in enlarging the tax net, and, in time, reducing the dependence on indirect taxes. However, there is a cultural problem that has to be attended to. As a rule and maybe due to historical reasons, Indians appear to have mastered the art of short-circuiting rules and procedures. We saw some of this during the demonetisation drive when fat cats made private deals with bank officials to exchange old notes for new, without the transactions being recorded.

Trust and a willingness to play by the rule book are very important in establishing the moral fabric of a country. The writings of late-19th century and early-20th century Indian stalwarts, particularly those who agonised over the reasons for India’s loss of sovereignty, indicate the premium attached to ‘charitra’ (character) in nation building. It is a tragedy that this emphasis on character-building was discarded after Independence as the focus shifted to identity and entitlements.

There are times, particularly during election rallies, when Prime Minister Modi projects himself as a combative politician in the traditional mould. However, there is a far more appealing Modi who comes across as something fundamentally different in his periodic Mann ki Baat radio addresses when he focuses on issues that go above partisan politics. It is that Modi which is driving this bid to create an ethical India.

That no politician has tried to achieve something so audacious is no reason why it shouldn’t be tried at all.

Arun Jaitley ethical living finance minister Indian economy Narendra Modi Prime Minister Vivekananda