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