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Finance minister Nirmala Sitharaman has to walk the fine balance between a candid assessment of the economy and providing a medium term vision to kick-start the economy. (Ramesh Pathania/Mint)
Finance minister Nirmala Sitharaman has to walk the fine balance between a candid assessment of the economy and providing a medium term vision to kick-start the economy. (Ramesh Pathania/Mint)

Opinion | Will Sitharaman slay NDA govt’s economic demons?

FM’s speech will have to strike the right notes and signal that the economy is not written off

Later this week, finance minister Nirmala Sitharaman will present what will be only her second Union budget. Given the headwinds facing the Indian economy and the expectations roused by the publicized photo-op sessions capturing the pre-budget discussions hosted by Prime Minister Narendra Modi, it is already being billed as the most defining budget of the National Democratic Alliance (NDA).

Indeed, the big question is whether this budget has the scope to be a big-bang exercise. It is easy for armchair analysts, many of whom seem to be dexterous to hold forth on virtually any topic, leave alone the Union budget, to lecture Sitharaman and an entirely another thing to actually be the person vested with the responsibility of pulling off a Houdini act on the economy. Because the fact of the matter is that there is very little room for manoeuvre—the worrying state of the fisc has already been revealed by the former finance secretary Subhash Chandra Garg.

The challenge before the finance minister then is to walk the fine balance between a candid assessment of the economy and providing a medium term vision to kick-start the Indian economy. Most importantly, Sitharaman has to calm the nation’s nerves and reclaim the narrative. Today thanks to the inclement political climate and a concerted campaign by the opposition, the popular perception is that the economy is at a point of no return. Yes, the economy is in pain and performing way below potential, but it would be stretch to dub it a basket case. The finance minister’s speech will, therefore, have to strike the right notes and signal that the economy is not written off and that the present stewards are firmly in control. The messaging has to also make it clear that there is no magic bullet and the country has to dig in for the long haul, like it did 29 years ago when faced with its worst foreign exchange crisis. It would be singular mistake to mask the truth. Not only will erode it the government’s credibility but worse, it will also spook business sentiment, which is already plumbing new lows.

This is the relatively easy part. The big choice the finance minister, and for that matter the prime minister, will have to make is on how much can they come clean on the economy. This is because admitting economic pain, some of which is unresolved legacy issues they inherited in 2014, will leave the government vulnerable to even sharper attacks at the hands of the Opposition. On the other hand, acknowledging the tough circumstances even while being optimistic about the prospects will generate a trust quotient with the public. At the moment Prime Minister Modi enjoys an enviable compact with the electoral populace on social issues.

Part of the problem at the moment is the government’s advisers, including the senior bureaucracy. Their broad conclusion—which they often vent in public too—is that the bad news is the outcome of a communication handicap and conveniently ignore the fact that the economy has lost a lot of its mojo. They have so far successfully created an echo chamber and preferred to ignore the message and in some instances shoot the messenger instead.

There is no gainsaying that the budget, despite the fiscal constraints, will have to serve up some goodies for the voluble middle class. Already expectations, especially after the cut in corporate tax rates in October, abound that there would be an encore with respect to personal income tax. Like in politics, the finance minister will need to be seen to be doing the right thing.

Pulling all these strands together is a tough ask. But then politics is the art of the impossible. And if Sitharaman does pull it off she would not only have slayed the economic demons that have bedevilled this government but also addressed her critics.

Anil Padmanabhan is managing editor of Mint and writes every week on the intersection of politics and economics.

Comments are welcome at anil.p@livemint.com

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