Finance minister Nirmala Sitharaman has deftly skirted the anxieties about the economy being in the dumps despite clocking the fastest growth rate compared to China and other countries in the world. She oriented the Budget allocations to the grander idea of pushing the country into the $5 trillion orbit and of making the youth and women, villagers and urbanites happy and comfortable. It was an interesting act of papering over the cracks, and she has almost succeeded.
In the post-Budget press conference she explained the positive spin in the Budget — that it was made from a “position of strength derived from the mandate”. She also explained the form of the Budget speech, which carried pronouncedly political overtones. She said that this was “the first Budget with a 10-year vision and a five-year target”.
The decisive electoral victory which has ensured a second term for Prime Minister Narendra Modi’s government this May has given more than elbow room for the finance minister to talk of making things easy for all people in the country in the next few years. The Budget speech was a political declamation, but there were strong signs of the government’s desperate bid to “kickstart” the economy.
The painful fact that private investment is lagging behind and that the $5 trillion goal cannot be achieved without an increase in private investment was clearly indicated at the beginning of her Budget speech, when she praised the private sector as having played a crucial role in the country’s economic growth. In her fulsome praise, she said: “The private sector has played an eminent role in growing the economy. India Inc are India’s job-creators, wealth creators.” And she emphasised that non-banking financial companies (NBFCs) have a key role to play in the banking sector in terms of credit growth because it seemed that the Narendra Modi government is of the view that credit growth cannot be borne by scheduled banks alone.
There was also the suggestion that the NBFCs could be allowed to raise money from the market through innovative financial instruments, including Credit Default Swaps (CDS) and that a Credit Guarantee Enhancement Corporation will be set up. Of course, the CDS are tainted instruments because they were responsible for the sub-prime mortgage crisis. It seems that the government is willing to take the risk so as to raise credit and investments and get the tardy economy to chug along. She had also shown that the Indian treasury bills and securities could be opened up to retail investors from India and abroad. And she had allowed non-resident Indians (NRIs) to make their investment in the country through the Foreign Direct Investment (FDI) route, like al other foreign investors, and that limitation on how much stake Foreign Portfolio Investors (FPIs) could hold would be liberalised further. It is a flustered gesture to mobilise foreign funds and investments.
The finance minister offered two solutions to the jobs issue. She said that international companies will be encouraged to set up manufacturing units in the country and that would increase employment in the country. The other was to train Indians in skilled professions, keeping in mind that the workforce in the global market is going down and Indians could close the gap. She had also sector specific suggestions like the setting up Maintain Repair Overhaul (MRO) units, which is a vital part of the aviation sector. She had also announced mega infrastructure projects in Indian Railways, in the roadways and in water transport, the housing sector.
It can be said in favour of Ms Sitharaman than her real hard Budget would be the one she would present on February 1, 2020, and that what she presented on Friday was a general statement of intent as to what the Modi government would do. And what it indicates on the face of it is that the Prime Minister has a hazy vision of what he wants to achieve by 2022, the 75th year of Independence, and beyond. There is little doubt that Mr Modi wants to create a “New India” which is better than the modern India that India had wanted to create at the dawn of Independence. The two are not exclusionary, and the New India of Mr Modi is possible because Jawaharlal Nehru’s modern India has taken firm roots in the country in terms of political and economic democracy.
Mr Modi and his party, the BJP, do not consider themselves to be right-wing, though their economic and political agenda reflects the right-wing orientation. Mr Modi’s motto, “Minimum government, maximum governance”, is wonderfully ambivalent. It implies that there should be more room for the private sector in the economy and a greater presence of the State in the lives of the people, especially the poor, because the State is their only benefactor. It is a complicated position, which cannot be dismissed out of hand, but which carries troublesome questions in its train.
Ms Sitharaman gave a hint of it in her closing sentences of Part A of the Budget speech, when she argued that for the past 50 years India had followed a rights-based path and that it was necessary to emphasise the duties. And she gave the sophisticated twist that duties sustain rights. Ms Sitharaman was merely echoing Prime Minister Modi, who had talked of the importance of duties in his reply to the motion of thanks on the President’s address in the Rajya Sabha, and he quoted from Jawaharlal Nehru about the crucial importance of duties.
The fundamental ambiguity of Mr Modi’s and the BJP’s economic philosophy is that of free markets, which play second fiddle to the nation state. But this position carries problems and challenges of its own. This was reflected in Ms Sitharaman’s Budget speech, when she referred to the institutions of excellence in higher education, the setting up of the National Research Foundation (NRF), and how funds would be given to research which is relevant to India and meets national priorities. A free market economy presupposes a liberal democracy, and liberalism is a sort of a red rag to Mr Modi and his party.
The writer is a Delhi-based commentator and analyst...