The most interesting passage in finance minister Arun Jaitley’s budget speech on Saturday came at the very end. Summing up what the budget had—and, presumably, had not—done, Jaitley said: “People who urge us to undertake big bang reforms, also say that the Indian economy is a giant super tanker, or an elephant. An elephant…moves slowly but surely." Critics of the Narendra Modi government may well read this—if they read superficially—as an admission that the budget, after all, didn’t deliver whatever sort of big bang they may have been looking for. Yet, read more carefully, and what one will see is a nuanced commentary on the Indian political economy— and even of Indian civilization, writ large —which has been characterized by gradual evolution rather than radical breaks and sudden changes in direction.

What one will also see is an implied critique of those breathless commentators who have urged radical reforms on the Modi government, without any understanding of the political and institutional realities that make such actions difficult or impossible, except in a crisis.

Indeed, in my inaugural column in this newspaper (“Narendra Modi going the Stephen Harper way", 10 November), I had argued that early signs showed that Modi, and by extension Jaitley, was pursuing a gradualist, rather than radical, track toward economic reform, and that this was the sensible course of action. This reasoning was echoed in the Economic Survey preceding the budget, which called for “a persistent, encompassing, and creative incrementalism" as the policy paradigm of choice.

The second most interesting passage in Jaitley’s speech was at its start. Observing that the budget is, in effect, a statement of the government’s accounts—and, by implication, not a vehicle for larger structural policy reforms—he added that it has also become an opportunity for the government to spell out the direction and pace of economic policy. He was precise what that meant: laying out “the road map for accelerating growth, enhancing investment and passing on the benefit of the growth process to the common man, woman, youth and child".

Seen through this lens, rather than through a prism of ideological purity, many of the budget’s proposals have a logic of their own. Thus, deferring for the future the politically difficult task of eliminating unmerited and wasteful subsidies, the budget proposes instead to reduce leakage and improve targeting, through the “JAM Trinity" of Jan Dhan, Aadhaar, and mobile telephony. This is an ideologically neutral and unobjectionable reform; yet, if successful, it promises to reduce significantly rampant waste and improve markedly the efficiency of existing welfare schemes.

Equally, the decision to loosen the fiscal target, and the plan to achieve a deficit to gross domestic product (GDP) ratio of 3% in three, rather than two, years, is a pragmatic response to the reality that, with private investment stagnant, the government needs to increase public investment—especially in infrastructure—if there is to be any hope of pushing growth in labour-intensive manufacturing. Here, it is laudable that the budget speech did not succumb to the agnosticism—if not downright pessimism— about the possibility of boosting labour-intensive economic activity which was starkly on view in the Economic Survey. The Survey’s position is perhaps unsurprising—its principal author, after all, is the chief economic advisor, Arvind Subramanian, who here is echoing the line of his sometime co-author, Dani Rodrik. The latter’s pessimism on premature “deindustrialization" in developing economies is well known. Unfortunately, the Survey arrives at its pessimistic conclusions through a backward-looking statistical methodology which is not fully grounded theoretically and ultimately proves to be unpersuasive.

In contrast to the Survey’s academic pessimism, the budget speech, in its pragmatism, stressed the centrality of labour-intensive manufacturing—both for job creation and rapid growth. As I have argued previously in these pages (“Making an industrial superpower", 22 December), the notion that any large economy can get rich on the back of skill-intensive services and capital-intensive manufacturing—both employ very few workers—is a pipe dream, at best, and a dangerous delusion, at worst.

Yet, strangely, the Survey paid obeisance to this fallacy, going so far as to ask, rhetorically, if the government should “create the groundwork for sustaining the skill intensive pattern of growth"? Stepping away from the brink of openly criticizing the government, the Survey squared the circle by suggesting that Make in India must walk hand in hand with Skill India—a homily that the budget speech repeated. Hiding behind this homily is the reality that rapid growth, driven by labour-intensive manufacturing, is powered principally by unskilled, not skilled, labour—as it has been from Victorian Britain to China in our times—a reality that Modi (and hopefully Jaitley too) understands.

Deferring politically contentious pruning of welfare schemes; loosening the deficit target to boost infrastructure spending; and focusing on labour-intensive manufacturing: all of these point to a pragmatic, forward-looking budget, which bodes well for India’s medium-term economic prospects, while preserving social harmony. For accomplishing this almost impossible balancing act, Jaitley deserves enormous credit.



Every fortnight, In the Margins explores the intersection of economics, politics and public policy to help cast light on current affairs.

Comments are welcome at views@livemint.com. To read Vivek Dehejia’s previous columns, go to
www.livemint.com/vivekdehejia-





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