Budget 2015: Sound Economics, Disappointing Politics

Harsh V. Pant is Professor of International Relations at King's College London. His most recent book is "India's Afghan Muddle" (HarperCollins).

Describing the Indian Parliament as the sanctum sanctorum of democracy and urging all members of Parliament to work in a "spirit of cooperation and mutual accommodation," President Pranab Mukherjee opened the budget session last week.

This is an important session for the Modi government. It wants to pass six ordinances this session, including an increase in the foreign direct investment in insurance from 26 percent to 49 percent, and changes to the land acquisition bill.

Opposition parties have united to oppose the land acquisition bill, stating that the bill will force farmers and the poor to lose their lands. Last year, the government used an executive order to amend the land acquisition bill and facilitate the buying of land for industrial projects. Anti-corruption campaigner Anna Hazare also protested in New Delhi last week demanding that the government withdraw its changes to the bill.

But it is the annual budget that will have a lasting impact on the future of the Modi government. Anticipation was high that it would announce sweeping economic reforms. In its first budget presented in July 2014, the Modi government focused on infrastructure development, streamlining of subsidies and easing restrictions on foreign investment. Though it was seen as lacking in ambition, two aspects in particular - an increase in foreign investment in the insurance and defence sectors to 49 per cent - were widely welcomed.

The Modi government also initiated an overhaul of creaky labour rules, cutting the power of labour inspectors and slashing the red tape for small companies that makes India one of the toughest places in the world to do business. It agreed to allow private Indian companies to mine and sell coal at an unspecified future date, setting the stage for the biggest liberalisation of the industry in more than 40 years.

Apart from raising FDI limit in insurance to 49% from the current 26%, changing land acquisition laws, amending archaic labour laws, implementing nation-wide service tax, and cutting wasteful subsidies on fuel, fertiliser and food are some of the important reforms that are in the process of being implemented.

Defying his own party's old guard with their belief in swadeshi, or self-sufficiency and distrust of foreign companies, the Modi government has been calling major powers to enter the full range of Indian industries and rolling out the red carpet for the global corporate sector with his "Make in India" campaign. At the same time, Modi has also been keen to reach out to the wider public with his projects related to construction of toilets and a programme to help all Indians open bank accounts.

And yet there is disappointment that the Modi government has not done enough to usher in major economic reforms in his first nine months in office. The focus of the Modi government's first full budget is on boosting growth, infrastructure and investment in the Indian economy.  Finance Minister Arun Jaitley introduced a universal social security scheme in the budget and proposed significant benefits for the poor.

The $288 billion budget also includes a corporate tax cut reduction from 30 percent to 25 percent for the next four years. Other major announcements included replacing the wealth tax with an additional surcharge on taxpayers earning a higher income, building five "ultra mega" power projects of 4,000 megawatts, and increasing infrastructure spending by $11.3 billion.


During his speech Jaitley said: "We have turned around the economy, dramatically restoring macroeconomic stability and creating the conditions for sustainable poverty elimination, job creation, durable double digit economic growth."

In response to the budget, P. Chidambaram, India's former finance minister said: "One cannot avoid the feeling that the budget leans heavily in favour of the corporate sector and the class that pays income tax... What is the government's leaning. Does it lean towards the poor? The answer appears to be no. It says when growth happens you will get the benefit, but until then fend for yourself."

While debate on the budget will continue, more than economics, it's the politics of budget that is crucial for the Modi government.

Politics is about perceptions. Despite a number of important initiatives from the Modi government, a perception has been gaining ground that there is no broader vision behind government policies, that everything is random. The Modi government has not yet made an all-encompassing argument - so its various policies don't add up to more than the sum of their parts. Without a ground-breaking argument about why the Modi government is radically different from its predecessors, it may have had to rely on tactical gimmicks to stay afloat.

It needs a frame to organize its responses and the myriad problems confronting the nation. In most successful political careers, there is a purpose, a guiding philosophy which is the foundation, all the rest is secondary. A number of separate, discrete and seemingly unconnected stands do not coherence make. India stands on the threshold of momentous social, economic and global changes and Modi has the potential to act larger than the moment, being propelled by something deeper than the last news cycle. He also needs to reaffirm at this juncture that India is an organic entity; that no interest, no class, so section is either separate or supreme above the interests of all.

The annual budget had offered the Modi government an opportunity to change the narrative, to tell the Indians and the outside world that it means business. More important, the Modi government needs to put in place a programme of action that will allow the country reach its full potential.

It's not clear that the Modi government has succeeded in dramatically altering the perception about its policies with this budget. The economics of the new budget is certainly sound. But the politics leaves much to be desired.

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