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Business News/ Opinion / Online-views/  Views | India and the UK: A tale of two coalitions
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Views | India and the UK: A tale of two coalitions

Views | India and the UK: A tale of two coalitions

Britain Chancellor George Osborne. Photo: ReutersPremium

Britain Chancellor George Osborne. Photo: Reuters

All budgets are political instruments but some are more so than others. That has been the case recently in the corridors of Westminster and also in Lutyens’ New Delhi. In Britain, public attention turned to Chancellor George Osborne while in India, all eyes fell on his experienced finance ministerial counterpart Pranab Mukerjee. With the coalition governments in both nations striving to navigate through economic uncertainty while seeking to retain political authority, the expectations to deliver ran understandably high. In politics, as with much else in life, the context in which a debate is conducted tends to shape its outcome. In the event, the skulduggery of coalition politics ensured that neither budget delivered an emphatic vision. Yet not were the soothsayers of doom proven unshakeably right. What is clear is that the contest for the centre-ground remains wide open in both countries.

Britain Chancellor George Osborne. Photo: Reuters

The UPA government was hoping that the budget provides it with much needed temporary relief. After its battering in the recent assembly elections – especially in UP – and a spate of scandals over the past 18 months, positive headlines were badly needed. That wasn’t quite to be. The pantomime political drama that followed the Railway budget put paid to that. While a quixotic Mamata Banerjee had her wish granted with Dinesh Trivedi’s resignation, this triumph of caprice only spoke to a deep sense of middle class India’s unease with the UPA’s ability to see difficult decisions through.

To be fair to Pranab Mukherjee, the task of presenting a budget that would reassure markets, placate allies and invigorate voters was never going to easy. The raising of the income tax exemption thresholds stood to please the electorate. But the spreading catchment of service taxes coupled with the 2% increase in such taxes and excise duties diminished that goodwill. More to the point, the fiscal consolidation agenda remains dependent on questionable assumptions. If the UPA’s s track record of delivery is anything to go by, promises to prune the annual subsidy bill by 12% - with nearly 25,000 crores of petroleum subsidies to eliminate – appear to stretch credibility.

In addition, the egregious attempt to provide retrospective ‘clarity’ to the Income Tax Act is itself worthy of lengthy jurisprudential discourse – suffice to say that overseas investors are unlikely to see it as a confidence inspiring measure. The prospect of structural reforms in key areas appears to have been conveniently sidestepped. The UPA may find it electorally convenient to avoid broaching challenging reformist questions. Yet the flipside of this hesitation lies in a steady erosion of authority and purpose.

From a comparative perspective, the exigencies of coalition politics have also made a presence felt in Westminster. The run-up to the British budget saw members of the Tory-Liberal Democrat coalition in open disagreement. Yet the glue that welds the coalition together is recognition that Britain’s fiscal deficit need pruning. The budget adhered to that philosophy. The mantra of reshaping the welfare state continued with an expenditure reduction of over £10 billion intended in the year ahead (on top of planned long term reductions). Osborne declared that ‘it would help Britain earn its way in the world’. The effort to boost business saw cuts to corporation tax and more controversially, the top rate of income tax was cut from 50% to 45% (still too high for some and too low for others). It also heralded an increase in tax allowances to help ordinary taxpayers. In overall terms, a fiscally neutral budget deserved to be commended given the circumstances in which it was produced. Its chief omission lay in failing to outline measures to resurrect short term demand in the economy. Keeping an eye on the future is clearly important. But the ‘here and now’ matters too. Governments that forget the latter are often reminded of it at the ballot box.

In the days ahead, the real challenges for both coalitions will be to ensure that difficult decisions are taken while preserving market confidence and electoral sympathy. The temptation to avoid painful choices will always make its presence felt. But governments that are beset by timidity are likely to find themselves in a deepening quagmire. They should remember the truth in the bard’s lament: when sorrows come they come not in single spies but battalions. The status quo may offer temporary safety. Yet the alternative course of being bold holds the promise of more lasting rewards.

Rishabh Bhandari is a lawyer based in London. He also writes on subjects that include British and Indian social, political and economic affairs.

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Published: 30 Mar 2012, 11:16 AM IST
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