Arun Jaitley: The Renovator

The former Times of India Editor Girilal Jain was among the first public intellectuals to grasp the progressive erosion of the Nehruvian consensus in the 1990s. In his study of the Hindu Phenomenon, published in 1994 and which is now sadly out of print, Jain attributed the visible cracks in the Congress to both a growing mood of self-realisation among India’s Hindus and to the larger crisis of socialism that led to the abrupt collapse of the Soviet Union. At the same time, Jain felt that the larger process of transformation ‘cannot but be prolonged and painful and the pace may not be good enough for modernists. But obsession with speed is alien to Indian civilization which underwrites the Indian nation-state.’

Conservatives, taking their cue from Edmund Burke’s critique of the French Revolution, have traditionally abhorred dramatic ruptures from the past. However, ever since Margaret Thatcher tried to ride roughshod over ‘consensus’ politics and demolish the nanny state that had killed Britain’s traditional sense of enterprise, Right-wing radicalism has become a preferred option for those waging war against a bloated and intrusive state. What is loosely called ‘Thatcherism’ and involving the rapid ‘rollback of the frontiers of the state’ has never really struck deep roots in an India where the notion of state-led paternalism—the mai-baap sarkar—has corresponded with good governance. Although ‘statism’ was never as overwhelming as in China, the India variant both preceded colonialism and acquired a new dimension with the Nehruvian order.

Since Independence, India’s fledgling conservative movements have focused their energies on cultural and civilisational issues. The attempts to mould the Hindu identity and create a secular, pan-Indian identity have been the arenas of conflict. This was true even after PV Narasimha Rao and Manmohan Singh attempted to temper the growing inefficiencies of the state sector with a fillip to private initiative after 1991. Indeed, as the experience of the two Congress-led United Progressive Alliance governments from 2004 to 2014 clearly demonstrated, India’s political class remained deeply suspicious of the market shaping the destiny of a ‘poor’ country.

The social coalition that gave Narendra Modi his spectacular victory in the summer of 2014 was ideologically heterogeneous. Apart from the Hindu nationalists that constituted the core of the Bharatiya Janata Party’s electoral support, the coalition was also made up of a large section of voters impatient with weak leadership, rising corruption and poor state delivery. Their anger, while real, was non-ideological.

There was, however, a small but influential section that equated Modi’s slogan of ‘less government, more governance’ with the Thatcherite notion of a minimum state that would progressively retreat from large areas of public life. Certainly, the Gujarat model was over- interpreted to imply that the Prime Minister equated efficiency with an erosion of the role of the government. Such impressions were strengthened by two developments. First, the abolition of the Planning Commission—the symbolic reference point of a command economy —was perceived more as a fillip to a system of self-regulation rather than as a rejig of India’s pre-existing federal arrangement. Secondly, Modi’s unending thrust towards improving the ‘ease of doing business’ in India was interpreted as an ideological retreat of the state rather than as a plea for greater efficiency and rationalism of the network of state controls.

The pre-Budget discourses on ‘expectations’ from the Finance Minister and associated plea for ‘big bang’ reforms that could transform a lumbering elephant into an ungainly race horse that would somehow overwhelm the Chinese dragon were a part of the irrational exuberance that confronted Arun Jaitley as he began his speech on 28 February.

Fortunately or unfortunately, no Budget in a democracy is made in monastic seclusion. Apart from the need to factor in global forces at play, Jaitley had to be mindful of the real pulls and pressures of a democracy where everybody demands the right to be heard. Indian corporates had their wish list of what adjustments were necessary if the ‘Make in India’ initiative was to gain momentum; foreign capital had its own perceptions of what India had to do to attract money from transnational corporations, pension funds and equity portfolios; the middle-class, battered for long by high inflation and eroding savings, wanted space to breathe more freely again; and India’s youth population just wanted more jobs and more opportunities to grow. Then there was the electoral dimension—scheduled elections in the poorer states of Bihar, West Bengal and Assam—that made it impossible for any Budget to be viewed as excessively pro-corporate and favouring fat cats and the better-off—expediently defined by a senior politician as the ‘2.3 crore people with demat accounts’.

That the Modi Government’s first full- scale Budget was moulded by broadly the same set of considerations that have influenced earlier governments tells a story that may be insufficiently appreciated. The BJP may have started life as a party whose influence was the most concentrated among small businessmen, the middle classes and the passionate advocates of Hindu nationalism. However, over the years, and especially after 2014, the party’s catchment area has grown exponentially. Today, the party has to be mindful of the new regions where it has expanded, the community of middle and small farmers that voted for it and the inroads it has made in poor, backward caste voters in northern and western India. The social constituency the BJP is now addressing is far larger and more disparate than at any time before.

To add to these social pressures, it is important to bear in mind that when it comes to thinking on the economy, pragmatism rather than ideology has been the guiding principle. Unlike Thatcher who would inevitably fall back on Hayek and even Friedman for inspiration, neither Modi nor the rest of the Sangh Parivar has a holy book on the economy. What operates instead are a broad set of instincts that have guided their responses over the years: lower levels of taxation, freedom from the inspector raj, encouragement to the private sector, preference for Indian enterprise over foreign capital, and a wariness of freebies and dole. In short, the elements of small govern- ment have combined with old-fashioned populism to produce a loose but inchoate belief structure. This Budget saw all these elements being combined. Jaitley, in short, wasn’t undertaking a rebuilding project but a renovation.

“This wasn’t a Budget by an economist; it was an accountant’s Budget,” a Bengali intellectual told me sneeringly after he had digested Jaitley’s speech. He was, in a sense, right. The Modi Government’s first attempt to convey an economic plan of action was only tangentially concerned with lofty notions such as the low tax-to-GDP ratio or even the letter of the existing fiscal responsibility law. It was all about fixing the plumbing and the internal wiring of an old house that was in urgent need of some upgradation.

Therefore, while accepting the recommendations of the 14th Finance Commission that, in effect, turned nearly half the revenues of the Centre over to the provinces, there was very little attempt to dictate the terms of the transfers. The Nehruvian model presupposed that the Centre would play the role of a redistributive agency, with the ever- grateful provinces heeding the principles of guided and equitable development. In 2015, we had the unique spectacle of a Centre unveiling its thrust and leaving it to the states to unveil their own. Quite unwittingly, and despite an attempt to give a leg up to the two eastern states of Bihar and West Bengal that had completely fallen off the manufacturing map, it was now left to the Chief Ministers to either invest in infrastructure and build capacity or fritter away their monetary bonanza subsidising unproductive and even wasteful programmes aimed at bringing short- term happiness for a few.

On its part, the Centre attempted two sets of measures aimed at nudging the states in a responsible direction. First, in line with the oft-stated ‘ease of business’ improvement, there was a promise to enact specific economic legislation: a bankruptcy law that would replace the hugely complex and wasteful route of keeping unviable enterprises notionally alive through the Board for Industrial & Financial Reconstruction (BIFR), and an automatic clearance provision that would prevent new enterprises from becoming operational. Economists who view manufacturing and economic growth as an abstraction would not find these moves to be of any great significance. However, for entrepreneurs concerned with their own ventures rather than the economy as a whole, these steps are of paramount importance.

Secondly, despite the BJP’s avowed detachment from state involvement, Jaitley’s Budget recognised the leading role of the Government in restarting the cycle of capital expenditure. The quantum of proposed Government expenditure in infrastructure (including, after a long time, the Railways) is estimated to increase by a whopping Rs 70,000 crore and cover 14 per cent of total spending in the coming fiscal year. The hope is that this will give the necessary fillip to the private sector to now start looking at India once again. Unlike the Nehruvian era, the Government will not sink money in steel plants and create new manufacturing public sector units; it will merely create the groundwork for economic activity to begin, not least through start-ups.

Ideally, the Finance Minister would have loved to add a lower rate of corporate tax to his package of incentives to the private sector. But this is one area where the image of being seen as unduly pro- corporate has proved a deterrent. The proposal was converted into a promise that would be fulfilled over the next four years. Despite the ingrained hierarchies of a traditional social order, India remains a land where envy-based socialist rhetoric plays a huge role in shaping public opinion. After the debacle it suffered in the Delhi Assembly polls, the BJP leadership has become excessively conscious of the need to not be seen as an Amir Aadmi Party, an imagery that will most certainly be exploited by the likes of a Lalu Yadav and a Mamata Banerjee.

This was a Budget marked by a large element of incrementalism and few decisive ruptures. In the context of today’s politics and keeping in mind India’s traditional abhorrence of urgency, this may well be the only approach that is politically digestible. Anything else could trigger needless convulsions that a government would find difficult to handle politically.

Yet, it may be a matter of solace to impatient reformists that even in the matter of social welfare—an arena traditionally associated with the Left wing of the political spectrum—the Modi Government managed a modest measure of conceptual shift. What Jaitley extravagantly described in his speech as the parameters of a “universal social security scheme”devoted mainly to old- age pensions and accident insurance, the Government introduced the rudiments of a citizen-state partnership. The Government may underwrite 50 per cent of the Atal Pension Scheme and keep the annual premium on a modest Rs 2 lakh accident insurance programme to a mere Rs 12. But in ensuring the principle of beneficiary contribution, it has made the citizen a stakeholder in the financing of welfare. Likewise, in re-funding Sonia Gandhi’s MGNREGA, the Government has opted to shift the emphasis from unproductive work to skill development and capacitybuilding in the country’s rural areas.

Whether these modest steps contribute towards a larger process of rethinking is still much too early to tell. But for those who are disappointed that the Budget didn’t provide enough evidence of Modi’s 56-inch chest, there is the awkward fact of the Indian mind that seeks painless, unhurried change. Every political project, and particularly one that is attempted in a democracy, has to take into account the diverse mentalities in a country as large and varied as India.

There was a Modi Project that existed in the realms of different imaginations during the General Election campaign of 2014. As India inches towards the first year of Modi rule, there is a creeping realisation that the achche din race is not a frenzied 100-metres dash but a long- distance race where energy, stamina and strategy have to be blended in equal measure. Using a cricket metaphor, political complications arise because one section of Young India seeks the headiness and excitement of a One-Day game whereas a larger section is more comfortable with the traditional five- day Test match.

Arun JaitleyBJPJawaharlal NehruNarendra ModiPrime MinisterUnion Budget 2015