Feb 28, 2015
In the Economic Survey strategically released a few days
before the Budget, Arvind Subramanian, its architect and the government’s Chief
Economic Advisor, had already prepared us for the Finance Minister’s boastful
elation. However, unlike Arun Jaitley, he had added other reasons than good
governance in the preceding few NDA months to help India reach a ‘sweet spot’
for economic growth. Crude oil prices had fallen dramatically from above $ 100
a barrel to less than $ 60 a barrel under American and Saudi joint action to
bring political pressure on Russia and Iran, both oil producing countries with
higher costs. Low inflation resulting from expected foodgrain production, and a
normal monsoon were the other volatile factors contributing to Indian economic
stability. If these turned against Indian economic forecasts, as they have in
the past, the ‘sweet spot’ could disappear in bitter political wrangling. But
the moment was with the Finance Minister and he made the most of it.
His confident speech started with a long list of what needs
to be done, reminding an older listener about a very similar list prepared by
Pandit Jawaharlal Nehru and Dr Mahalanobis at the dawn of independence. What
had not been done in the last sixty odd years, Jaitley confidently expects
would be accomplished by 2022 when his government hopes to celebrate the Amrut
Mahotsov of India. Nor was this the first time that an Indian politician has
promised that all Indians would get jobs, houses, schools, hospitals, happiness
– not just yet...but soon.
With a dark thunderstorm brewing in parliament over the land
acquisition bill, he started with the government’s commitment to farmers. He
led with his determination to increase irrigation, as many of his predecessors
had done. From the time of Pandit Nehru, politicians have not been able to see
beyond the interests of the large farmers with land in command areas and under
ayacuts. Mr. Jaitley, to do him justice, made passing references to organic
agriculture, soil improvement, micro-irrigation, rural infrastructure, and farm
credit, but it seemed unclear to all listeners – and perhaps to him as well –
who would benefit and to what extent. A national agricultural marketing network
is very welcome, but no one is clear how the millions of poor farmers can
connect with it. No strategy came to light how help would be given to
communities of farmers on rainfed lands, who are the great majority of poor,
small farmers in deadly peril, precisely because this government like the rest
is clueless about their living and working conditions, or about rural life at
the vast bottom of our caste-class human pyramid. Their economists know how to
help corporate India, large farmers and landlords who garner votes, and maybe
even the middle classes. After Gandhiji, perhaps no Indian politician has
thought long about the vast numbers of the poor, except vaguely to send them
good wishes.
The Prime Minister has spoken often about single window
access to services. His bureaucracy continues to be autocratic, moored to its
colonial heritage, with babu satraps defending their turfs. It will take many
more years than the seven to Amrut Mahotsov to create a genuine civil service, which
is both civil to, and which serves, people, especially the poor. The PM’s and
the Finance Minister’s emphasis on the urgent need to build up rural
infrastructure is sound in theory, but it lacks experiential detailing at
India’s several thousand local levels. Roads and electric poles alone will not
do. A cluster of support needs to be created around every poor farming
community, and this cannot be done well without local political empowerment. A
larger sharing of tax revenues with States’ leaders, in which the government
takes so much pride, is far from strengthening the panchayat raj institutions,
and their communities.
‘Make in India’ is another sound slogan, and the government
correctly focuses on energising manufacturing, which has excess capacity in
many sectors, lacking effective demand, even for its major automobile industry.
But reducing corporate tax from 30% to 25% over the next five years, or
reducing regulatory hassles for foreign direct investment are not enough to
increase demand, which ultimately depends on purchasing power of the people. If
industry cannot create a wide domestic market, it cannot be competitive in
exports either, especially in a global scenario dominated by the Chinese.
The Finance Minister has taken the welcome step of setting
up the Micro Units Development Refinance Agency [MUDRA] bank to aid the 5.77
crore SME units mostly owned by SCs, STs, and OBCs. However, if this is not to
join other failed well-intentioned schemes, he must also help create a growth
climate in the localities where these units are situated. He can solve his dilemma only by creating
strong associations of poor farming communities, that is for the major part of
India’s population, and this will require political will, bureaucratic renewal,
and the understanding of local difficulties above all.
Kiran Shaw, founder of Biocon, and Keki Mistry, CEO of HDFC,
both in television audiences for the Budget speech, pleaded ably for government
to help industry increase investment cycles to create more jobs. Arvind
Panagariya, the Vice Chairman of the Niti Aayog, the new planning commission
with a Hindi name, also applauded the government for its pro-corporate
leanings. However, bitter experience in this country and several others has
shown that corporate job creation is expensive, and the best use of public
money is in the social sector to allow community synergies to create the
millions of jobs that are urgently needed for our sizeable youth population
from among the poor. The Finance Minister himself stressed a few times the
financial squeeze he was under. Coupled with his commitment to keep fiscal
deficit under 4% of GDP and inflation below 6%, he should be careful where he
puts his money and for what purpose.
The government can
certainly take credit for their excellent Jan Dhan scheme which has extended
banking services to the poor, so long denied with impunity. The newly declared
insurance and pension schemes for the poor are also good and welcome. A cess of
2% on the income of the super-rich exceeding Rs one crore a year was also
announced, with the discontinuation of the wealth tax. Another populist
announcement of 7-years imprisonment for hoarding money abroad may have played
to the galleries, but sober voices from the TV audiences wondered whether this
could be turned into a witch hunt of political opponents. As Sachin Pilot
wisely reminded everyone, it is surety of punishment, not its severity, that is
needed. Another policy of doubtful merit is the institution of a new Monetary
Policy Committee to oversee the RBI which has had an excellent record so far as
an autonomous body without much governmental interference.
A slew of yoganas and schemes were announced as was to be
expected. Ultimately it all depends on proper implementation as Adi Godrej,
past president of the Confederation of Indian Industry, reminded the TV
audiences. The Finance Minister is placing a great deal of hope on
Public-Private-Partnership not only to pull in investments into large
infrastructure schemes but also perhaps to enliven a red-tape bound
bureaucracy. The Telangana experience casts doubts on his enthusiasm, since the
unique Provision of Urban Amenities in Rural Areas [PURA] PPP project, first
conceived by Dr. AJP Abdul Kalam himself when he was President, has so far not
seen the light of day in Warangal, even after five years, though it was
declared as the best in the country!
Referring to his financial squeeze, Arun Jaitley gestured to
parliamentarians and others to give up their LPG subsidies. If he were really
serious he would have looked into the structure of under-recoveries by the oil
companies. Though they have come down substantially due to the temporary drop
in crude oil prices, they could once again reach towards the 150,000 lakh crore
mark if oil prices bounce back with a vengeance to make up for lost profits. Brazil,
one of our BRICS partners, has hedged against this danger, by fitting almost
all of its road transport with ethanol using engines. The technology is well
established, with Henry Ford himself first making use of ethanol. India as a
major producer of sugarcane can easily supply all the ethanol we need for road
transport. A few crore farmers would also benefit since sugar factories can
then maintain a steady demand for cane to convert to ethanol when there is over
production of sugar. It appears the liquor lobby obstructs such moves for fear
of increasing costs.
PDS kerosene cost the exchequer anywhere from Rs 25000 to
30000 crores in subsidies. Solar-powered LED lighting came of age some years
back. Despite all governments making polite noises about promoting off-grid
solar energy appliances, the regulations of its Ministry of New & Renewable
Energy are among the most arcane devised by an obfuscating bureaucracy,
hindering solar energy development.
Perhaps the greatest enemies of the Modi government are its
claque of supporters at home and in the Indian diaspora. Too many expectations
have been heaped on this fledgling government, ensuring disappointment and
anger when these fail to materialise within the next five years. Social,
political, religious, and historic issues intertwine in this saga of
development, as noted long ago by Gunnar Myrdal, and no superman can produce
success without painful, long drawn out, negotiations with, and among, several
thousand communities. Modi and his ministers should warn the Indian people, as
Churchill did to his people in a time of war and crises, that what we have to
look forward to is a time of toil, sweat and tears. As Modi himself pointed out
in his parliamentary oratory the day before the budget, we must all come together
to fight against poverty. So, it is not an invitation to a party but a massive
social struggle. The Finance Minister should be careful not to paint too rosy a
picture.
