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.