By Swapan Dasgupta
The wicked people will say that the only evidence of Finance Minister Arun Jaitley breaking from the past was that he avoided a poetic finale to his Budget speech. However, this aside highlights a very real perception problem that may dog the Narendra Modi government in the coming months unless there is corrective action.
The problem, ironically, has arisen because Jaitley chose to prioritise the principle of continuity over a political consideration. It was a near-open secret that P. Chidambaram’s Interim Budget estimate of the fiscal deficit being at 4.5 per cent of GDP was wishful thinking. It was based on the calculation that this was as much the financial community could digest without pressing the panic button. Confronted with a near-empty treasury and huge outstanding obligations, Jaitley was left with two choices: he could either come clean with the whole truth and risk both an adverse market reaction and the world’s faith in India’s official fiscal reporting, or he could take a deep breath and be reconciled to a flawed inheritance.
In the coming days, particularly if the government faces additional problems over drought and petroleum prices, the decision to uphold continuity in government will be questioned by those BJP supporters who preferred a bout of kitchen-sinking—bringing out all the bad news at one go. However, the Modi-Jaitley duo concluded that popular reaction to full disclosure would have seriously affected the upbeat, we-can-do-it mood of the investor community and subjected the achche din promise to mockery. Additionally, they felt it was inopportune to get into a confrontation with the Congress at this early stage and risk charges of not upholding the ‘national interest’.
The consequence of this difficult political choice was that the Budget appeared as one that could have been presented by a reformist Congress minister.
This is a facile conclusion. There may be common ground but the “challenge” (some would call it gamble) Jaitley has accepted is based on at least four distinctive premises.
First, there is the belief that the bottled-up entrepreneurial energies will come into full play under a government that is unapologetically business-friendly. It is felt that business plans kept on hold for the past four years will now be operationalized. In short, nothing must derail the restoration of India’s faith in itself.
Secondly, there is a commitment to rationalise government spending and curb wasteful expenditure. Without being explicit, this Budget has prescribed severe belt tightening—a big change from the tax and splurge culture of the past.
Thirdly, the ambitious resource mobilisation targets of the Budget are also based on the resounding success of the disinvestment programme that presupposes buoyant capital markets with faith in the India story.
Finally, the speed at which the Modi government pursues a sharp reform agenda will also depend on the outcomes of the coming state elections. A set of positive results for the BJP will ensure better representation for the party in the Rajya Sabha and encourage Modi to press the accelerator. Adverse results won’t reverse the process but it will prompt the government to slow down in a battle against time.
Despite the fact that the political message wasn’t delivered with characteristic forthrightness, the Budget was a proclamation of intent. Yet, there are things that just don’t add up. Jaitley may have preserved the honour of his Finance Ministry by not rubbishing the entire past, but what sort of signal has it sent to the bureaucracy that will oversee the big changes Modi contemplates?
Continuity has its pitfalls and the most obvious one is that the Modi dispensation is in serious danger of being led by the nose by a bureaucracy that is most at ease with perpetuating the status quo through control. Certainly the main body of the Budget speech conveyed the unmistakable impression of having been penned by someone who was completely impervious to its political rationale and made the seamless transition from UPA to NDA.
Modi may believe that, as in Gujarat, he can motivate the same bureaucracy to do his bidding. Maybe he can but not before babudom grasps the reality of political change. At present, there is no indication of such a realisation. For the Indian bureaucracy the achche din has been never-ending.
Sunday Times of India, July 13, 2014
Thursday, July 17, 2014
Posted by Swapan Dasgupta at 12:27 PM