Budget 2021 Has Dared to Mute Populism

 

It has been a very long time since a budget actually cut short on frills and embellishments and took head on some of India’s bigger challenges. Political messaging in India for long has been couched in the poverty driven, gareeb kalyan, redistributive mindset which while seemingly right has made politicians forsake growth as a political strategy. To that end, the Narendra Modi government’s Budget 2021 with Finance Minister Nirmala Sitharaman have displayed a rare step - a break from the voter driven politics of India and actually pushing for growth.

For the longest time, India’s political class has been deriving the wrong messages from electoral politics. This misplaced belief that free goodies, subsidies and coverage for all will somehow be able to buy the voter’s support has caused much damage to the economy. What has often been forgotten is that you can only distribute what you earn, and distributing wealth instead of poverty is what the voters would rather prefer.

It is remarkable to note that for the first time, only one new scheme has been announced, and that too with a focus on sustaining and growing human capital through better and affordable healthcare. Also, a point that seems to have unnoticed is the announcement on rationalizing and reducing the number of Centrally Sponsored Schemes as per the recommendation of the Fifteenth Finance Commission. While it can be argued that this will enable consolidation of outlays for better impact, the sense of a strategic scaling back by the government with regards to its expenses cannot be missed. Clearly, pragmatism not driven by narrow focused cynical votebank cultivation politics has found its place in the sun.

Welcome Privatization, Opportune Spending – Two Big Takeaways

For the first time ever, one heard the Finance Minister of India use the word privatization with respect to the central public sector enterprises. As outlined in the Budget, both in strategic and non-strategic sectors, Central Public Sector enterprises will be privatized and/or merged or subsidiarized with other CPSEs or closed. The very fact that the government used this term is a belated recognition of a bigger malaise – the inefficiency of the public sector in several areas and their status quoist nature stymying India’s growth. Taking the bull by its horns, the change in terminology clearly shows the acceptance of the famous lesson the late Margaret Thatcher perhaps espoused best - The pursuit of equality itself is a mirage.

Of course, it is interesting to point out that often in the din around growth numbers, structural reforms have taken place over the past six years that often get forgotten. To blame the Narendra Modi led administration of not undertaking reforms is blatantly false. Goods and Services Tax, Insolvency and Bankruptcy Code, Companies Act amendments to decriminalize provisions and scrapping outdated laws among other things have been consistently pursued. Of course, one could argue that these were incremental, but the fact that the government did not relent on spending recklessly in a pandemic year, and instead wait for the revival to take off, also stands testament to its sagacity towards effective and timely spending instead of creating a fiscal hole without leaving the worst behind.

Transparency on Fiscal Deficit – Much Needed Course Correction

For a while now, there has been this tendency of governments to hide their fiscal deficit through what would one crudely call accounting magic. However, the Modi government took the pandemic as an opportunity to set the record straight with respect to the GDP numbers. In the July 2019-2020 Budget, Finance Minister Sitharaman had disclosed the borrowings of Government agencies that went towards funding government of India schemes, and whose repayment burden was on the Government. Continuing this trend, a big elephant in the room was addressed by enhancing the scope and coverage of the Statement to include the loans provided by Government to the Food Corporation of India (FCI). In this regard, the boldness to discontinue the NSSF Loan to FCI for Food Subsidy and make Budget Provisions accordingly clears the room for any ambiguity about the government’s intentions to fudge numbers.

That the Budget would highlight this aspect and quote a number as high as 9.5 per cent for 2020-21 and over 6 per cent for 2021-22 is testament to the government’s intent to pump in money to fund growth for this financial year. It must however be appreciated that the government, unlike its peers in other countries, did not open the vaults and spend recklessly, only to find itself back to square one. Instead, it prioritized its spending to tackle the pandemic and ensure the basics for the economically marginalized till the economy could start to recover. Only now, when the signs of revival are so strong, has the government pumped in money to make the impact. Note the stark contrast with the reckless financial package introduced by the UPA government in 2009 though -  it was unnecessary, and it damaged the Indian economy with the interest burden it created for nearly a decade, thus stymieing India’s growth as it continued to struggle to repay interests and bond receipts.

Budget 2021 has set the tone by positioning itself as one of the boldest political economy statements in more than two decades made in India. Backed by the personal political capital and goodwill of Prime Minister Modi, it has got the biggest endorsement. High growth rates need not be a dream anymore, provided that the government will stick to the path from here, and hopefully the political economy of poverty in India, which has done little to address the problems faced by millions of Indians, can be given a long overdue burial.