Photo: Manish Swarup/AP
Photo: Manish Swarup/AP

Budget 2015 | Accelerating into the curve

The Budget should provide guidance on federalism, govt's role in the economy, and in structuring social interactions

Commentary on the budget has shifted from wish lists to exhortations to prognostication as we approach 28 February. Much of this focuses on the details: the tax breaks, the expenditure allocations, the policy statements that may come. But the broader governance patterns are what will matter for the years to come.

India is like a two-wheeler: stable as long as there’s momentum; agile in heavy traffic, but risking mishaps with every move; and lacking much of a shell to protect its riders from the elements. The handlebars initiate the direction, but the body weight defines its trajectory. Beneath the slogans and statements, the expenditure allocations and tax concessions, this government’s plan for reshaping the State and its role in the economy, polity, and society is what really matters for the coming decades.

Where’s the body weight shifting?

At least three important aspects of the Indian state and its role are in flux: the federal balance of power, the role of the state in economic transformation, and the use of sovereign authority to structure social interactions. States are increasingly important political and economic actors in their own right, with regional parties, global investor outreach, and a narrative of differentiated state strengths and innovations. The old checkmate of central control over finances versus state control over much of the administrative action has become a more varied terrain of cooperation and competition. The proceeds from coal auctions go straight to states, smart cities seem to spring from the ministry of urban development.

The demographic fact of a young workforce looming over what looked like jobless growth has forced increasing attention to the need to do something to Make Jobs in India. That something currently has shades of everything from curating sector-specific opportunities to clearing the underbrush to Doing Business across the board. Both tactics can coexist for a while but eventually special treatment and a wide-open space for all to compete will collide.

The State has become more explicit in efforts to reinforce some cultural traditions, while at the same time stepping back from some of the choices that it has traditionally made on behalf of its citizens. The logic of direct benefit transfers, for example, puts more of the onus for choosing what to buy where from whom in household hands, as do health allowances and publicly financed health insurance. Budget 2015, one of the biggest signalling events of the year, will provide more clues about the way the weight is shifting.

On federalism, the consensus seems to be that the Union government will overhaul the schemes and devolve substantial untied funding to states, following the 14th Finance Commission’s recommendations. But will it reinforce this learning with initiatives that reinforce the principle of subsidiarity, where decisions are left to the lowest level of government that can take them without causing significant externalities? Will it defragment decision-making, so that one level of government—whichever level—can make decisions without having to convince others or being able to blame them? Infrastructure reforms will be particularly telling on this front—transferring more urban transport authority to states, for example, would be a big surprise but an even larger signal of a shift towards rationalizing decision-making on top of moving money around.

On economic strategy, the Budget is sure to contain a long list of provisions for specific sectors and areas. But will it also include credible strategies for enabling economic activity across the board? Will it, for example, offer a new roadmap or announce progress in implementing the goods and services tax (GST)? Will it lay new institutional grounds for leadership in innovation, not just in one sector but many by changing the way research is financed perhaps, or opening up public procurement to make it more accessible to small or new businesses? What will Budget 2015 offer that any entrepreneurial type can benefit from, even if their idea is not yet on the Make in India list or if they’re not within reach of a special-economic-zone-to-be?

Finally, how will the State use its sovereign authority to shape the social order? Will Budget 2015 invest in strengthening the machinery for unbiased application of the rule of law, the very core of an open access order? Will it continue its trajectory toward being more hands off in social policy by substituting cash for specific goods and insisting on financial compensation for land rather than more in-kind restitution? And education—hands on or off the curriculum and administration?

My point here is to raise questions rather than recommend answers. There are logical and empirical arguments for shifting the weight in various directions in all three of these areas.

Decentralization puts government closer to the people and opens up more arenas for innovation. Centralization enables deeper redistribution and allows policy to levitate above petty local power structures.

Sector-agnostic policy allows the best ideas to rise to the top eventually, but that may not be soon enough for this generation or this global economy. Immediate is a virtue and sometimes strategic state favouritism works. Market, state, and social norms all have virtues and vices in regulating some aspects of our lives as a community.

We’ll have lots of room to argue about the details. But we should also watch where the weight’s committed.

Jessica Seddon is managing director of Okapi Research and senior fellow at the IIT Madras Centre for Technology and Policy.

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