A no-nonsense Budget

As finance minister Arun Jaitley began reading his third Budget on Monday morning, one of the headlines quoting him was interesting. It read: “This Budget deals with the reality of India: Jaitley”. It should have actually read: “Jaitley’s Budget finally accepts reality of India”. As the saying goes, der aaye, durust aaye. Better late than never.

After almost two years of promising great change through rapid economic growth (“Gujarat Model”, anyone?), the Bharatiya Janata Party has narrowed on what the ideal economic policy is for India and it doesn’t look very different from that of the United Progressive Alliance.

The Congress’ reaction to the Budget — “Nothing new in this budget” — was petty and predictable. Former finance minister Chidambaram said: “One big takeaway from the Union Budget is that there is no new idea.” Former Prime Minister Manmohan Singh also said that there were no big ideas in this bill. That should actually be cause for celebration. What was required was continuation of NREGA and expansion of Aadhar and of Direct Benefits Transfer. What was required was focus on the rural economy and infrastructure. And also sharpened focus on health and education, with less stress on defense. That the Budget attempts to deliver on some of these and stays clear of bullet train type of nonsense is a matter of great relief.

So what explains the change? The Budget indicates that BJP has been tamed to some extent by the politics of the last six months. This may be surprising to some because, on most evenings, the BJP has won the debate on the news channels which are aimed at the middle class constituency. It has clouted the Congress and “liberals” on such issues as intolerance and nationalism. But those who voted and supported the government on more substantial issues would have scratched their heads wondering why the focus of the government was on such trifles while the economic problems remained significant. Why was the government so obsessed with the cultural anxieties of the urban middle class and expending so much energy on them?

This Budget corrects some of that perception. It will be difficult to say this is the Budget of a “suit-boot ki sarkar”. It is not. The Congress should be pleased that this Budget validates its policies. That it does not choose to do so is silly. The Modi government has made a significant political decision through this Budget, and it is moving Left, towards the centre of the political space. This should concern the Congress.

The people most disappointed with Mr Jaitley and Mr Modi will be those on the Right who assumed that there would be enormous change and difference in a Modi Budget over a Manmohan one. They may have thought that the first couple of times were too soon and that Mr Jaitley would in this, his third Budget, wind himself up and hit the ball for a six. Unfortunately, that was not a mature view. It assumed that the solution lay in such things as liberalisation and reform; that the problem in India was too much government and that the state needed to reduce in size. These are ridiculous solutions in a country where the presence of the state in policing, health, education and other basics is minimal.

Mr Modi has made no attempt to reduce the size of the state though he is promising, once again, to make it more efficient. At least one-half of the slogan, “minimum government, maximum governance,” has turned out to be false. And again, this is a matter of relief. That it took all these months should not detract us from the fact that the thinking is prudent and cautious. So is this Budget going to help growth? The truth is that, and forget everything you have read and seen about the Budget, nobody really knows.

Realism may have reentered our politics with this Budget, but the market has been realist for a very long time now. Any grand ideas of rapid growth under Mr Modi vanished from the financial markets last year. The only thing the market was looking for from this Budget was big negatives. The Sensex plunged 600 points at one point after Mr Jaitley began speaking. It then decided that what he was saying wasn’t that disastrous after all and recovered 800 points before concluding that this was business as usual. And business as usual has been bad on Dalal Street and so it rested 150 points below where it was when this fine Budget was presented.

Unless there is some revival externally, which is most unlikely, investors should assume that the bull run that was predicted in the Modi era is not going to come.
For most economists, the government has retained credibility by sticking to its fiscal deficit targets. All told, to me this Budget is old wine in an old bottle and thank heavens for that.

One wishes the change of tack and focus that one sees in this Budget would come elsewhere. This government has spent almost its entire time in office running after useless issues that have damaged the image of India and pained many of its citizens. A less reckless and more cautious approach on cultural issues, particularly those linked to Hindutva and nationalism, would please those of us who think this needs urgent addressing.

Unfortunately, the thinking in the BJP has long been that it can calibrate its cultural agenda. And that turning up the heat just before elections, and episodically, as it is doing with the JNU and intolerance issues, is helpful with voters. So long as that kind of thinking remains in the party we must anticipate, sadly, that there will be other issues on which all the bitterness and bile we have seen in 2015 and the opening months of this year will return.

It will take a significant defeat for the BJP to let go of that mischief, which may please many in the middle class but ultimately damages India. For now we should be happy that, at least on the economic front, the needle has moved to the centre, if not to the Left.