Monday 29 February 2016

The Union Budget 2016-17 : Of Populism, Bitter Pills and Eventual Growth



The Union Budget 2016-17 had a pressing context for the Modi-led NDA Government. Over the past few months, there was a crisis of confidence brewing across the country with regard to the economic agenda of the government. There were left-leaning accusations of the Government trying to hide it’s economic failings through the cloaks of communal sentiments, divisive politics, so on and so forth. There was a convergence of a gamut of issues pertaining to governance that had descended to face the government in the past couple of weeks, which made this Budget not only important for economy but in a lot of ways for the body-polity of the nation at large. 

In the past, many a budget has been accused of trying to parry to every possible sector and in the process not doing enough for any of them. An economist and planner would contend that the planning problem in an economy with resource constraints, would not allow him/her to wield the magic wand for every sector simultaneously. The Economic Survey distinctly made certain aspects of the economy come out wide in the open such as the prevalence of weak external demand, the global slowdown and its impact on the Indian Economic growth, the need to revive agriculture and on sustenance of the growth aspirations in an environment of not-so “benign” macro-economic factors. In such a backdrop, the budget would set for the Economy became of crucial importance for nationwide politicians, economists and observers.

The NDA government in addition to propagation “sabka saath, sabka vikaas” and introducing schemes such as Digitial India, Start-Up India, Make in India, Stand Up India, has been predominantly seen as one with large corporate leanings. Make in India in itself was touted as a game-changer for the manufacturing sector of our country, giving us certain dimensions of a possible manufacture-centric and export-led growth. In an environment of such a massive recent impetus to manufacturing, entrepreneurship and exports thereof, the initial sections of the Budget did seem to be coming as a slight shocker with it’s repeated emphasis on the infrastructure, social sector and the rural sectors of the economy. Even with the enunciation of the 9 pillars of a budget which was just touted as a “transformative” one, the departure from the usual lines of economic discourse was prominent.  Five out of nine pillars enunciated were oriented towards wider notions of economic development thus breaking the very monotonous Growth Mania that our country and the corporate sector finds itself immersed into, with sectors such as Agriculture, Infrastructure, the Rural and Social Sectors getting a key spotlight with the Finance Minister’s Speeches. 

Albert Hirschman had once famously pointed out that for an underdeveloped Economy to accelerate and carry forward with a growth in it’s GDP, it would best be suited with focus on certain key sectors of the economy which would carry the rest of the economy forward. His tract on Unbalanced Growth seems to have resonated far and wide within the corridors of the Finance Ministry which decided to make this budget a primarily pro-poor one with major announcements in the five areas I have mentioned above. For a government to be pressurized to maintain on its promises to the electorate on one hand and keep up the “bright spot” image of the economy in front of the rest of the world on the other, the direction of the budget was bold and rather beautiful on paper, on the hindsight at least. 

What has interestingly occurred in this budget, as a continuation from where I left off in the last paragraph, contrary to a lot of popular opinion, manufacturing and services (predominantly the urban sector) were not seen as the focal points in the growth story for the economy for the next fiscal year. The Finance Minister seems to have re-sparked the Lewisian divide very well by focusing a lot of the push on the rural sector of the economy, be it from the goal of doubling the average farmer’s income by the year 2022 to the massive impetus on schemes pertaining to irrigation, ground water management, crop insurance, and most importantly the MGNREGA. As someone who has been observing the economy with somewhat magnified detail, one aspect of this impetus was made clear. The government is no longer relying on external demand to drive production in our economy forward. The rural sector has been rightly identified as one where domestic demand generation would be able to plug certain demand gaps in the economy and thus begin a positive cycle of demand led output and growth via domestic means in the Economy. Indicative of this massive push is the allocation of 87,765 crores for the rural sector, 2.87 lakh crores as Grants in aid to Gram Panchayats and Municipalities along with the 38,500 crore package for MGNREGS. For agriculture and the rural sector to be the beneficiaries of the mantle in this budget, the unbalanced stimulus of expenditure met out to them seems to bear promise of economy-wide reverberations in the coming months. If I have to look at it from a Keynesian perspective, the investment in the sectors economy which have been very much out of the focus in the recent past would certainly help the multiplier to prop up demand and output in the economy. 

The second broad area of focus would be infrastructure, which has also experienced a massive injection of funds. The investment of 97,000 crores in the road sector and a total outlay of 2.21 lakh crores for infrastructure have been only indicative of the path forward that the government wants to be adopting. A lay-man would probably wonder behind the logic of this entire injection into the economy on infrastructure and transport alone. What got me thinking is the linkages, that the transport and infrastructure sector, provide in an Economy as vast as India. The economic potential of developing and accelerating work on two sectors with as massive as linkages of railways and roads is something that reeks of a lot of Keynesian sense of government investment to spur growth in an economy. Let’s be honest and look at the long list of allied industries which are going to benefit from these investments. Each of those allied industries will have allied industries of themselves and this is only the beginning of an economy-wide ripple effect of increased investment in the Economy, which would be heralded as a massively positive step toward positive a growth and development environment in the Economy. The benefits to these allied industries that I did speak of just now would only translate into demand creation for the corporate houses and potential markets for the very same entities which are sobbing at the moment for no up-front benefits per se doled out to them in today’s budget. Let us not forget here, the lessons in the roadmap for Europe suggested by the erratic marxist, former Greek Finance Minister, Yanis Varoufakis, who prescribed a very similar stimulus through infrastructure spending in the economy rather than the adhered to quantitative easing, to accelerate growth in the European Union.

A lot of people contend and will carry on doing so throughout the evening and the next week that this is not a populist budget. The need of the hour was not a populist budget but one that accelerated growth and improved the parameters of performance in the economy on fronts which would draw in greater investments into the economy in the near future. What the government has essentially done is to take it’s two biggest eggs and place them in two sectors which it feels would help it spur domestic demand, domestic output and national growth. It is very akin to a football club having a transfer kitty of 100 million pounds and spending 75 million on two marquee players around whom they would prefer to assemble a team, keeping those two as the focal point of the club’s future. The Government has in essence done the same thing with the rural, agriculture, social and infrastructure sectors being earmarked as its engines for growth in the coming years. The criticism to this budget on this very front would come in the form of barbs and jibes, with regard to the other sectors of the Economy. However as an economy, it is very important for us to take the case of China where the most recent “slowdown” or as I may put it “major hiccup” (not the one it is currently under) in the wake of the 2007-08 financial crisis, was dealt with through massive investments in the rural, agriculture and infrastructure sectors in order for the Chinese Communist Party to sustain those surreal growth rates for a few more years. If we as a body polity are ready to tout China’s story as a growth success in the recent past, we must also be ready to take certain steps that the former took in contending with sustenance of growth in the wake of weakened external demand and dampening global macro-economic cues. 

The populism of this budget does not lie in the schemes and outlays announced, along with the trajectory of growth set by the economy but much in the potential payoffs of these very schemes and investments that they shall undertake. Gerrymandering in the name of a budget has probably not happened today, and the sooner people realize the potent of the direction of this budget, the better the body-polity of the economy would do in contributing to the growth story of India. For a government branded as neoliberal, pro-corporate and so much more, this budget has the potential to be a watershed one in the short and medium term growth story of the nation with the entire world steeped into a mode of slowdown.

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