The Budget presented on 26 February was the second of the United Progressive Alliance (UPA) in its second avatar. However, unlike the budgets of the previous UPA government, this one stands out as a bold political statement of the ruling dispensation.
Read with the Economic Survey, it is a clear statement of the departure from the underlying political economy paradigm of the previous dispensation. This Budget should be seen as a political statement and not merely a statement of accounts of the nation. If there is any parallel to this, it was the first budget Prime Minister Manmohan Singh presented as finance minister in 1991.
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In any case, budgets of the last several years have remained mundane statements of expenditures and revenues. These no longer make any sense because there is hardly any correlation between what is stated to be the expenditure and what is actually spent. Attaching too much meaning to the amount allocated to various heads is neither a relevant parameter to judge the functioning of the government, nor is it any indicator of the underlying political economy. However, this is not to say that the budgets have lost their relevance. On the contrary, as this Budget has shown, it remains the single most important statement of economic principles that guide the government’s functioning.
Other than being a statement of facts about the government’s expenditure, budgets have rarely been seen as political documents—partly because fiscal and monetary measures are no longer restricted to being presented in the beginning of the fiscal year. Governments have been required and have responded to events throughout the year.
Nonetheless, this Budget does require a careful analysis of the economic principles that underlie the thinking of the government. Although this is not so well articulated in the budget documents, it has been clearly argued in the accompanying Economic Survey. The second chapter of the Economic Survey—“Micro-foundations of Inclusive Growth”—explains some of the steps taken in the Budget. It clearly argues that the agenda of inclusive growth is no longer the principal domain of state policies alone. It says the role of the state is no longer to intervene in day to day management of the economy and is at best an enabler of economic growth. If, in the process, prices rise and inequalities increase, then so be it. Even creating employment is no longer the state’s objective.
What does it imply in terms of political economy? First, growth remains the primary objective of economic policy. Second, this has to come from betting on the private sector and the rich, the section that can deliver on savings, investment and consumption. Third, inclusive growth is no longer a specific objective of government policy but a consequent outcome of economic growth. Finally, if in doubt, turn to the market since the market knows best.
And that’s what the finance minister has done. He has raised prices of essential commodities such as fuel, cement and steel. He has also decontrolled fertilizer prices. Prices of urea have increased by 10%. But that is all that is there for the rural sector and the urban poor. For farmers, two-thirds of their input costs are fertilizers and irrigation (mainly diesel), and that will now go up. Food prices remain high but that has not deterred the government from reducing the food subsidy bill. And if the minutes of the empowered group of ministers on the Food Security Act is any indication, the present entitlement on foodgrains is about to be reduced by at least 10kg (in line with the promises made by the Congress party), and there will be no entitlement to the above poverty line population. So what if half the country is malnourished and food prices have been on an upward spiral for the last one-and-a-half years.
But it does not mean that the government is not worried about the common man. It is, but its definition of the aam aadmi is not what we have got used to. It is not the poor of the country. The Budget does a lot for the aam aadmi defined as the affluent, articulate (read English-speaking), middle class of the country. The finance minister has left no stone unturned to provide relief to this aam aadmi and not the poor aam aadmi. And you don’t need to fight about who they are. The aam aadmi of the finance minister is the top 5% of the country defined as all those with an annual income of more than Rs3 lakh. If you belong to that category, there are enormous benefits for you.
If you are the bottom 95% of the population, be prepared to pay more for everything. If you are a farmer, also be prepared for a lower income since your input costs are going to increase. If you are unemployed, don’t worry. Wait for the private sector to create job. But don’t expect the government to bring down prices, create employment. After all, aren’t these responsible for creating cumbersome bureaucracy and widespread corruption? Or wait till governance is reformed.
But in the long run, pray that the private sector does what it has been ordained to do.
Himanshu is assistant professor at Jawaharlal Nehru University and visiting fellow at Centre de Sciences Humaines, New Delhi. Farm Truths looks at issues in agriculture and runs on alternate Wednesdays. Respond to this column at firstname.lastname@example.org