Economy’s future is Ram bharose

By Swapan Dasgupta

Like most things Indians or, rather, Hindu, there is a great deal of ritualism that accompanies the annual Budget exercise. For Finance Minister P.Chidambaram, a seasoned hand in presenting Budgets, the predictable part of the choreography may lie in the mandatory recitation of a verse from Thiruvalluvar; for the writers of the Economic Survey it may consist of repeating last year’s assurance that darkness is inevitably accompanied by sunshine; and for those who are dubbed corporate ‘honchos’ it may lie in describing every Budget as ‘responsible’, ‘innovative’, or even ‘path-breaking’.

However, like the mantras that commits the worshipper to give generously to the Brahmin intermediary between God and the devout, the invocations need not be taken at face value. This is particularly so with a Chidambaram Budget. PC’s reputation for having a low threshold of tolerance and his self-projection as a most superior person have ensured that candid discussions of the Budget are behind closed doors. Apart from the political class who enjoy exceptional protection and a few economists who are mad enough to speak their mind, the predictable response to a PC Budget is about as mellifluous as the King of Basutoland’s tribute to Queen Victoria : “my country is your blanket, and my people the lice upon it.”  

I am naturally not referring to those corporate notables who were sceptical of the claim that the present fiscal deficit is 5.2 per cent of the GDP because some crucial items of expenditure had been conveniently overlooked but, yet, that the Budget was good or even excellent. I am not even contesting the belief that the Indian economy needs to be talked up, as Prime Minister Manmohan Singh tried to do when he feebly suggested that an 8 per cent GDP is not in the realms of a Bollywood fantasy. My simple assertion is that the orchestrated projection of PC as the perennial Superman (recall an India Today cover after the Budget of 1997) who, having ‘fixed’ the deficit, now deserves a role greater than being Finance Minister is a tad overstated.

Nor is this particular reading of the tea leaves too fanciful. According to the political grapevine of Lutyens’ Delhi which tends to get a little overshadowed by the Budget drama, there was a flutter of sorts in North Block last Thursday following an article in The Hindu that painted the Finance Minister as yet another lackey of corporate India—a Congress version of Narendra Modi who was being projected by an alliance of moneybags, ‘communalists’ and Middle India as the great brown hope. That it had been penned by a man whose understanding of the Congress is quite profound added to the consternation. The article was brought to my proverbial attention by a man whose understanding of the Prime Minister is equally deep suggested that something was brewing.

In public, the Congress will heartily endorse the Budget of 2013. They will point to the fact that PC has not curtailed expenditure, particularly on welfare schemes, has reached out to women albeit symbolically, has snarled at the 42,800 of India’s super-rich with a taxable income of over Rs 1 crore and even managed to set new norms for backwardness that could increase the wedge between Nitish Kumar and the BJP. To add to these achievements, he deftly targeted Indian SUV manufacturers, enhanced the tax burden on the futures trades in non-agricultural commodities and added to the woes of the diamond industry. On paper these may look random but there was an underlying hint of punitive action against those who have links to Gujarat and Modi.

In this Budget, the Finance Minister had little elbow room. That he made the most of the limited opportunities will endear him to a section of the Congress that believes the way forward is for Rahul Gandhi to find his own answer to his mother’s choice of Manmohan Singh as Regent. Only the wilfully obtuse can overlook the fact that the Budget has been accompanied by the first tentative demands of a ‘PC for PM’ campaign. At present, the hints of such an approach for the 2014 general election is emanating from a group that can be said to be headquartered in Race Course Road, a clutch of businessmen and industrialists who are based in Karnataka and Tamil Nadu and, as such, have little or no dealings with the alternative superstar in Gujarat. It may even find tacit support from diplomatic missions who are uneasy at the thought of a familiar Establishment being replaced by unknown people.  

Ideally, for these sections, Rahul should have been at the helm of the ‘continuity with change’ strategy. However, for reasons well known, he has proved a disappointment. Hence, the importance being attached to Chidambaram and, equally, the rising opposition to what Congress loyalists see as a recipe for electoral disaster. “Mamnohan Singh joined the Congress to become Finance Minister”, a disaffected Congress MP told me last week, “but Chidambaram left the Congress to become Finance Minister.” The reference was to PC’s defection to the Tamil Maanila Congress in 1996.  

In India, few remember history. For PC, the real test is not whether his DNA is Congress but whether India experiences a bout of sunshine before voting day in 2014. At present, the future of the economy is in a state of Ram bharose. 

Sunday Pioneer, March 3, 2013

No pain, no gain

By Swapan Dasgupta

An Indian Budget has more than its fair share of hype. This has its origins in the bad old days of the ‘socialistic’ economy when every fiscal year brought about a large measure of unpredictability. Mercifully, wild policy shifts and fluctuating rates of taxes are evils that went out of fashion after Manmohan Singh’s landmark Budget of 1991. Yet, old habits die hard and the animated discussions that preceded Finance Minister P. Chidambaram’s 2013 Budget were part of a ritual.

At the same time, there was a discernible difference. In the past few years, Indian self-confidence has taken a huge knock. This had everything to do with what Alan Greenspan in another context had called “irrational exuberance”. After a few years of rapid growth and the welcome end of the shortage economy, India had come to believe that its emergence as an economic superpower was inevitable and, indeed, pre-ordained. The past three years saw this exaggerated self-belief come unstuck. Far from negotiating the challenges of an eight or nine per cent growth, the country has been trying to come to grips with the new reality of GDP growth hovering around 5.3 per cent.

The expectations from the Finance Minister on Thursday were distinctly modest. The pessimists were concerned that the last Budget of the UPA-2 Government before the 2014 general election would see him succumb to the reckless populism that party activists believe can win elections. The optimists, on the other hand, clung to the belief that Chidambaram wasn’t going to do another Pranab Mukherjee act and depress sentiment further. It all boiled down to a simple question: will politics prevail over the hard logic of economics.

The only thing that can be said in favour of the Budget Chidambaram finally presented was that it was greeted with relief. There was no one in either camp that came away from his 100 minute performance with a sense of elation. Equally, there was no total dejection.

The populists who had expected a massive allotment for the proposed Food Security Act were disappointed that he kept aside a mere Rs 10,000 crore—an indication that the legislation will probably be enacted in the final months of the Government. There was disappointment too that the monetary allotment to the other flagship programme—MNREGA—was actually decreased—an admission, perhaps, that this great act of rural empowerment was yielding diminishing returns.

Among the ‘aam aadmi’ constituency, those with a head for figures were also quick to notice that the claimed 46 per cent increase in the Rural Development Ministry budget, the 22 per cent increase for agriculture and 17 per cent for education were against the Revised Estimates and not the ones presented by Pranab Babu before he departed for Rashtrapati Bhavan. Congress MP Mani Shankar Aiyar calculated that the proposed Rs 655 crore additional funding for the Panchayati Raj ministry translated roughly into an extra Rs 2,000 per panchayat each month!

The extent to which Chidambaram has managed to control expenditure while paying obeisance to symbolic acts such as the Women-only public sector bank and the Rs 1,000 crore fund in memory of the Delhi gang-rape victim, will become clear in the coming days. However, what is sufficiently clear is that if he is going to be faithful to his commitment to keep the fiscal deficit at 4.8 per cent of the GDP, there is absolutely no way in which he can allow populism to run riot.

The credibility of Chidambaram in the eyes of those who make crucial decisions affecting money will depend on his fiscal deficit management. The sub-text of the Budget speech was that the deficit had been contained at 5.2 per cent because of the past few months had seen the Finance Ministry tighten the purse strings since August last year when it seemed that India would be faced with a ratings downgrade. Many economists believe that the claimed 5.2 per cent figure is window dressing and that the actual fiscal deficit is much higher. This implies that Chidambaram has really very little scope for manoeuvre before the election. If the investing community persists with its overall scepticism and delays new investment in India, rash populism will inevitably invite international disapproval, a ratings downgrade and a plummeting rupee.

Chidambaram had few sops to give to Corporate India, and even his punitive 10 per cent extra surcharge on the 42,800 individuals with a non-agricultural income of over Rs one crore was packaged as a one-off demand. But India Inc was not asking for concessions. It had two basic demands. First, there was the expectation of better macro-economic management. Equally important was the hope that the projects worth Rs 700,000 crore that have been stalled owing to problems with government clearances will finally start to materialise. This doesn’t involve announcements in the Budget—though a mention of the problem may have helped; it calls for political will and better governance.

Unlike the fiscal deficit or even the revenue deficit, the deficit of governance can’t be quantified. Yet, the ability of Chidambaram to mount a successful salvage operation and inject meaning into the Prime Minister’s post-Budget hope that India will soon be on an eight per cent growth trajectory, depends almost entirely on improving the quality of governance.

Unless, of course, the UPA-2 believes that the next election is as good as lost and that the next best thing is to make life hell for whatever follows.

Asian Age, March 1, 2013 

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.

Sunday Pioneer, March 18, 2012

To pamper NAC, tax the people

By Swapan Dasgupta

There is a curious ritual that is faithfully enacted each Budget day. The Finance Minister makes a rambling speech, concluding with a verse from the Greats, which leaves most MPs (and, for that matter, TV audiences) completely weary. However, a ripple of excitement is felt in the Treasury benches the moment the FM announces that the allotment for a welfare scheme, invariably named after one or the other member of the Nehru-Gandhi family, has been increased by a few hundred crores. The message is received by an enthusiastic thumping of desks and much happiness.

There is little doubt that later this month, when Pranab Mukherjee presents his Budget, the scene is certain to be replayed. The worry beads won’t be out when it is realised that the GDP figures for the past four quarters show a sharp and worrying dip, that manufacturing is growing at less than one per cent and that the fiscal deficit, projected by last year’s Budget to be some 4.6 per cent of the GDP, is set to touch six per cent. But come the announcement of some grandiose mega-scheme, the MPs (cutting across party lines) will be joyous.

It is politically incorrect to contest the unstated consensus that each Budget should see more and more money being pumped into welfare schemes. Since Sonia Gandhi institutionalised the participation of unelected representatives of NGOs into the decision-making process, the belief that India’s first priority is to craft a socialist-style welfare state has taken deep roots. It has become the new common sense to insist that the burgeoning revenues from economic activity must be channelled into a new regime of doles and subsidies. At every opportunity, the brigade of articulate, middle-class do-gooders guilt trip successive FMs into apportioning more and more money into more and more schemes designed by the poverty brokers.

This year, when India is witnessing a discernible economic slowdown, economic activity is being hit by exorbitant interest rates caused by an inflation that itself was the result of the government’s fiscal profligacy, and inflation has made a dent in the middle class standards of living, there is a new demand that is echoing through the corridors of power: tax more. The tax rates in India, it is being argued, is too low and is needlessly generous to the fat cats who must be squeezed till the pips squeak. In the 1950s, the socialists in the Congress and their Communist friends used to rail against the monopolists; today, they declaim at the obscenity of Indians who enrich themselves in India but make fresh investments overseas.

As is to be expected, the new demand reflects the emerging anti-business attitudes of the liberal elites on both sides of the Atlantic. President Barak Obama has made class conflict the basis of his re-election plank against Republicans who seem too preoccupied with faith and morality. In Britain, the coalition government is having a tough time contesting the emerging wisdom high earners must be taxed over and above the 50 per cent rate of income tax. In France, the socialist challenger to President Sarkozy wants a 75 per cent tax on millionaires.

This growing anti-business and anti-entrepreneurial mood isn’t visible in China, Singapore, Indonesia and other Asian countries that have witnessed rapid growth. However, since the West dictates intellectual fashions of the Indian elite and supplies a translated version of the ‘eat the rich’ dogma, the assumptions of defensive societies have become the mantra in some circles of India. It is so reminiscent of the ease with which the systematic suppression of the private sector under Jawaharlal Nehru and Indira Gandhi was backed by volumes of economists’ wisdom.

This time too there is the backing of the same tribe of quack doctors for raising all taxes. The logic is simple: if the economy as a whole is on a downturn, squeeze those who have nurtured growth since 1991.

This self-destructive bloody-mindedness that draws sustenance from a culture of envy is the inevitable result of not wanting to address the root of the problem: the quality of the ever-growing government expenditure. When, some five years ago, I had described the then fledgling Employment Guarantee Scheme as the Corruption Guarantee Scheme, I was dubbed a despicable, right-wing cretin. Today, as was evident during the UP election, political parties now compete with each other to allege the embezzlement of state funds.  

As The Pioneer reported last Thursday, the Rs 1,00,452 crore spent on the MNREG programme in the past six years has yielded diminishing returns. The days of work provided for households, far from reaching the stipulated 100 days, actually fell from 54 in 2009-10 to 47 in 2010-11 and 32 in the nine months of 2011. Even economists who are naturally inclined to endorse mega schemes have begun to issue warning signals. In an article to Hindustan Times, Abhijit Banerjee, Pranab Bardhan and others wrote: “how these progressive policies have actually worked in practice has left this claim (of being a pro-poor government) in tatters.”

The time may perhaps have come to begin questioning the quantum and quality of public expenditure on the ego schemes of Sonia Gandhi. During the UP campaign, both Rahul and Priyanka boasted of how much money “we” gave to UP. It’s not they who gave the money, it was taxpayers both rich and poor who have paid for political profligacy. 


Sunday Pioneer, March 4, 2012