Hours before budget in Parliament came reports of January numbers of Goods and Services Tax (GST) that showed second-highest monthly collection since the launch of the new tax regime in July 2017. A day before, core sector index showed a sustainable uptick in crucial categories of cement, steel, and fertilizers - hinting at the revival of both agriculture and urban construction. Taken together with other macros like inflation and the Purchasing Managers Index (PMI), a picture had emerged on the eve of budget that all bad news on economy had bottomed out. A pitch was ready for some pinch-hitting by the Modi government for the literal and figurative 2020 general budget. Given this, I might not be the only one left wondering if union finance minister Nirmala Sitharaman missed the ball. Or has she?
In the post-budget analysis from inside the studios, I heard investment banker and financial analyst Jitu Panjabi call the Modi government's instincts 'Singaporean' in terms of using capitalism only as a political tool for its socialism. This seems like the crux of the Sitharaman budget. Speaking to our Editor-in-chief Arnab Goswami, she was sanguine about its ideological construct. Explaining why she did not go all out on issues like the Long Term Capital Gains (LTCG) Tax and the Securities Transaction Tax (STT), which could have acted as the booster shot for Dalal Street, spurring investments in return, Sitharaman said: "I could have given more money to a few. But my intention was to leave more money in the pockets of the poor. It is for them to decide whether my actions impact them."
The target audience of Modi government is clear thus. Those looking at the collapse of the markets as proof of missed opportunity might be missing the ideological mooring completely. Just to elaborate with one example: While the overall subsidy bill remains the same, the allocation has shifted to Modi government's target schemes like Ujjawala focused on ease of living. When the Finance Minister spoke of aspirational society, it was not aspirations of the punter on Dalal Street, or the corporate honcho not satisfied even with the Rs 1,45,000 crores tax cut, but the village woman who has just graduated from open defecation to a home toilet, and from wood fire to an Ujjwala gas connection. Plus, it should be mentioned that there is lot of good in the budget from warehousing to increased agri credit to boost the rural economy, which is already looking up at a good Rabi season kick. The sops for data farms and start-up ecosystem are potentially a gamechanger.
That there would be fiscal slippage this year had already been accounted for by all stakeholders. In fact, a majority opinion among all government advisors on economy was that fiscal prudence is only for good times. There was example of 2008-09 when under Pranab Mukerjee, fiscal deficit shot up from budgeted 2.5 per cent to 6 per cent in the face of the global recession. But there is an element of worry so far as the 2020 budget, while pushing the thought of deficit financing, prefers the markets borrowing route thus potentially crowding the private capital out. Markets are perhaps reacting to that.
There's an Americanism that goes 'If it ain't broke, don't fix it." Union Finance Minister Nirmala Sitharaman has followed it in giving a budget that is more of July 2019, which was more of February 2018, which was more of Modi government's second one in 2015. Essentially a consolidation budget that keeps an eye on the electorate. One would say the best way to feed everyone is to increase the size of the pie and then distribute it. The Economic Survey underscored the need of eschewing that socialism. But in politics, the optics of distribution cannot go out of sight. The 2020 Modi government budget does exactly that.
PS: Modi government's first budget in 2014 was a bold one with reforms on land and labour incorporated, before the 'suit buit ki sarkar' jibe put a permanent lid to any radical shift, with the government having chosen incrementalism as the creed since.