No pain, no gain

The Budget P. Chidambaram presented was greeted with relief. There was no sense of elation. Equally, there was no total dejection.

An Indian Budget has more than its fair share of hype. This has its origins in the bad old days of the “socialistic” economy when every fiscal year brought about a large measure of unpredictability. Mercifully, wild policy shifts and fluctuating rates of taxes are evils that went out of fashion after Manmohan Singh’s landmark Budget of 1991.

Yet, old habits die hard and the animated discussions that preceded finance minister P. Chidambaram’s 2013 Budget were part of a ritual.
At the same time, there was a discernible difference. In the past few years, Indian self-confidence has taken a huge knock. This had everything to do with what Alan Greenspan in another context had called “irrational exuberance”. After a few years of rapid growth and the welcome end of the shortage economy, India had come to believe that its emergence as an economic superpower was inevitable and, indeed, pre-ordained. The past three years saw this exaggerated self-belief come unstuck. Far from negotiating the challenges of an eight or nine per cent growth, the country has been trying to come to grips with the new reality of GDP growth hovering around 5.3 per cent.
The expectations from the finance minister on Thursday were distinctly modest. The pessimists were concerned that the last Budget of the UPA-2 government before the 2014 general election would see him succumb to the reckless populism that party activists believe can win elections. The optimists, on the other hand, clung to the belief that
Mr Chidambaram was not going to do another Pranab Mukherjee act and depress sentiment further. It all boiled down to a simple question: Will politics prevail over the hard logic of economics?
The only thing that can be said in favour of the Budget Mr Chidambaram finally presented was that it was greeted with relief. There was no one in either camp that came away from his 100-minute performance with a sense of elation. Equally, there was no total dejection.
The populists who had expected a massive allotment for the proposed Food Security Act were disappointed that he kept aside a mere Rs 10,000 crore — an indication that the legislation will probably be enacted in the final months of the government. There was disappointment too that the monetary allotment to the other flagship
programme — MGNREGA — was actually decreased — an admission, perhaps, that this great act of rural empowerment was yielding diminishing returns.
Among the aam aadmi constituency, those with a head for figures were also quick to notice that the claimed 46 per cent increase in the rural development ministry budget, the 22 per cent increase for agriculture and 17 per cent for education were against the revised estimates and not the ones presented by Pranab babu before he departed for Rashtrapati Bhavan. Congress MP Mani Shankar Aiyar calculated that the proposed Rs 655 crore additional funding for the panchayati raj ministry translated roughly into an extra Rs 2,000 per panchayat each month!
The extent to which Mr Chidambaram has managed to control expenditure while paying obeisance to symbolic acts such as the women-only public sector bank and the Rs 1,000 crore fund in memory of the Delhi gangrape victim will become clear in the coming days. However, what is sufficiently clear is that if he is going to be faithful to his commitment to keep the fiscal deficit at 4.8 per cent of the GDP, there is absolutely no way in which he can allow populism to run riot.
The credibility of Mr Chidambaram in the eyes of those who make crucial decisions affecting money will depend on his fiscal deficit management. The sub-text of the Budget speech was that the deficit had been contained at 5.2 per cent because the finance ministry had tightened the purse strings since August last year when it seemed that India would be faced with a ratings downgrade. Many economists believe that the claimed 5.2 per cent figure is window dressing and that the actual fiscal deficit is much higher. This implies that
Mr Chidambaram has really very little scope for manoeuvre before the election. If the investing community persists with its overall scepticism and delays new investment in India, rash populism will inevitably invite international disapproval, a ratings downgrade and a plummeting rupee.
Mr Chidambaram had few sops to give to corporate India, and even his punitive 10 per cent extra surcharge on the 42,800 individuals with a non-agricultural income of over `1 crore was packaged as a one-off demand. But India Inc. was not asking for concessions. It had two basic demands. First, there was the expectation of better macro-economic management. Equally important was the hope that the projects worth Rs 700,000 crore that have been stalled owing to problems with government clearances will finally start to materialise. This doesn’t involve announcements in the Budget — though a mention of the problem may have helped; it calls for political will and better governance.
Unlike the fiscal deficit or even the revenue deficit, the deficit of governance can’t be quantified. Yet, the ability of Mr Chidambaram to mount a successful salvage operation and inject meaning into the Prime Minister’s post-Budget hope that India will soon be on an eight per cent growth trajectory depends almost entirely on improving the quality of governance.
Unless, of course, the UPA-2 believes that the next election is as good as lost and that the next best thing is to make life hell for whoever follows.

The writer is a senior journalist

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