Sunday, March 18, 2012

Good politics but bad for country

By Swapan Dasgupta

Finance Minister Pranab Mukherjee’s Budget speech reminds me of an essay written some 150 years ago by the celebrated Bengali writer Bankim Chandra Chatterjee.
In that essay, Bankim addressed the question of India’s subjugation over the centuries. “Hindu kings or the rulers of Hindustan,” he observed, “have been repeatedly conquered by alien people, but it cannot be said that the bulk of Hindu society has ever been vanquished in battle, because the bulk of Hindu society has never gone to war.”
On Friday morning, Pranab babu took a lesson from the collective experience of Hindus and did what was politically most prudent: He refused to join the fight and made the Union Budget a complete non-event. This was not because he is inherently a dull person or, worse, a dreary accountant. In a pre-meditated move, he refused to be bowled over by those clamouring for a bold, reformist Budget similar to the ones presented by VP Singh in 1985 and Manmohan Singh in 1991. Neither was he impressed by those on the populist and Left wings of the UPA Government to squeeze the rich and the corporates and go on a spending splurge with money that the Government did not have. He did absolutely nothing and postponed all serious decision-making to a time when the Government could have the luxury of making a relaxed choice. The late PV Narasimha Rao, the man who mastered the art of management by inaction, would have been proud of him.
The Finance Minister was aware that any hard choice — either to go in for fiscal consolidation or undertake profligate spending — would have triggered a political reaction. After the debacle of the Assembly elections and the theatre of the absurd over the Railway Budget last Wednesday, what the Government needed was a period of calm and a time to get its house in order. As the Congress’ foremost fire-fighter, Mukherjee earned a breather for the Government.
Of course, the Budget did contain proposals that will add to the inflationary spiral in the short term. The widening of the service tax net and the hike in excise duties will lead to consumers paying more. The salaried class will be angry that the retention of high interest rates for loans has been accompanied by an unreasonable cut in the interest paid on Provident Fund deposits — the latter decision was craftily detached from the main Budget.
At the same time, Mukherjee deftly protected himself from any flak from his inability to meet last year’s Budget fiscal deficit targets by once again committing himself to bringing the deficit down. The Budget has deliberately understated the subsidy bill of Sonia Gandhi’s newest philanthropic venture — the proposed Food Security Bill. If this measure can be made to do the rounds of the parliamentary committees and sub-committees for the next 12 months, it will be a big boon for the Finance Ministry. If it becomes law midway through the fiscal year, the deficit targets will go completely awry — especially if coupled with a rise in the fuel bill — and bring India close to a 1991-type situation when the Government had to mortgage its gold reserves.
Some economists believe that the Budget proposals contain a hidden proposal for removing the subsidies on diesel. That may well be the case. However, the point is that Pranab babu has merely postponed having to take hard decisions. In six months or so, he hopes, the UPA will be better placed to decide which course is politically more rewarding.
In essence, this Budget has delayed an economic crisis that many people legitimately believe is already upon India. If industry, already weighed down by crippling interest rates, remains sluggish and if the woes are compounded by persisting stagnation in agriculture, India will move from a political crisis of the UPA to the dissipation of the larger Indian growth story.
It is a risk that only beleaguered politicians who have lost sight of any larger purpose of governance are willing to take. The Congress at this point in time has lost its way. It is confronted by a crisis of credibility and a crisis of leadership. It is possible that in six months or nine months things will improve. On the other hand, the loss of direction may turn into panic. Mukherjee’s Budget is based on the most common assumption of the beleaguered — a belief that things can only improve and that the Opposition will score innumerable self-goals. He also hopes that the Budget will be a one-week wonder and that after the initial excitement is over, the political class will get back to its more humdrum interests: Monitoring the shenanigans of Mamata Banerjee, hounding Narendra Modi and cheering or taunting Rahul Gandhi.
The magnitude of the economic downturn has been inadequately appreciated by politicians cutting across the political divide. The belief that entitlements are sacrosanct and once given cannot ever be taken away is now part of conventional wisdom. This is why the focus is always on increasing revenue and not curtailing Government expenditure.
Sooner, rather than later, these assumptions will be brought into question, particularly if India heads towards fiscal anarchy. The Budget has traditionally given the political system a small window to discuss the economy and, maybe, even digest a few hard lessons. Mukherjee’s genius lies in the fact that he deprived India of an opportunity for engagement. It was good politics but bad for the country.

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