The Hindu Business Line : Signal for early polls

The general perception is that the Budget for 2008-2009 is an election document, the expectation being that the Lok Sabha polls — due in the middle of 2009 — will be called before the end of the year, along with the scheduled State Assembly elections. The Congress Party has, of course, shot down the supposition.

Largest-ever package

The party chief, Ms Sonia Gandhi, has praised the exercise as a “revolutionary step”. The Prime Minister, Dr Manmohan Singh, himself an accomplished economist, went to the extent (as reported) of patting his Finance Minister on the back and saying that the writing off of the farm loans — to the extent of Rs 60,000 crores — was a “very unorthodox response” to the problem in hand. He is also said to have complimented Mr Chidambaram for having “lived up to his reputation”. On a more serious plane, Dr Singh is reported to have said: “We keep talking about the animal spirits of businessmen. But I think the farmers are the biggest businessmen of our country. They produce essential commodities required by us. If their animal spirits are depressed, it is not good for the country”. Some other Congress leaders have been quoted as saying said that Budget has offered the “largest-ever package” to farmers and that while other Governments have only talked about such a step, the UPA regime has implemented it.

‘Consolidated’ Budget

On the subject of the Budget being aimed at preparing the electorate for early Lok Sabha elections, an unnamed Cabinet Minister is said to have argued that, far from being an “election Budget”, the 2008-2009 exercise has been a “consolidation Budget”, explaining that “our revenue earning has been phenomenal and with it we want to bail out farmers and build schools, hospitals and rural infrastructure”. Among the other reasons cited why the Congress is undecided about early elections, one report said that “the party needed time to ensure that the message of the Budget’s ‘positive spin-offs’ reaches everywhere, that a lot depended on the monsoon, and that “the Left and the allies would have to be brought on board”.

How did the Finance Minister himself explain the import of his Budget proposals? At the best of times, it is never easy to explore a lawyer’s mind since it is totally dependent on the perspective, which shifts with time and situation. However, on this occasion at least, it would appear that his proposals have three identifiable objectives. The first, of course, is to bring the farming community within the fold of “inclusive growth”. As he told a newspaper, “The growth story is intact. But the story has to become more inclusive. The sector that feels largely left out is agriculture. So an attempt has been made to give it relief and make it more inclusive”. That “attempt” is the massive waiver of defaulting farm loans.

Welcome arrangement

An associated target has been “strengthening” of the banking system. To quote the Minister, “Please remember this is money out of the banking system. Some of it is already overdue, already non-performing assets. So banks are already unsure as to how much of this Rs 60,000 crore would come back to them. So let me write off the loans and we agree to provide liquidity of the equivalent amount to the banks. The banks are welcoming this arrangement because they will have fresh liquidity to lend. So we will only have to work out the systems. And we will do so over a period of three years. Because the money will come back to the banking system over a period of three years”. However, when asked for the specifics, he said: “We have done our homework and everyone was taken on board”.

The third objective is a potential strengthening of the demand side. As he told reporters after the Budget presentation, “We have not imposed any additional burden on the corporate side. We have made deep cuts in the excise tax on goods of mass consumption. We have also left more money with the people”. Speaking elsewhere, he said that, although spending could be inflationary, “today there is slack capacity”, adding, “Consumption is flagging. We need to stimulate demand”. When asked about effective implementation of the broad policy, which would make all the difference between massive wastage of resources and a revving up of the economy through the demand-expansion route, he said: “I can only appeal to the State Governments to govern better and the people to elect Governments that work better” (which, to some people, may apply to the Centre as well).

So there is hardly any politics in the Union Budget, at least this time round, or so the Congress leaders, the Finance Minister and party workers would have the nation believe. It is all based on solid economics, the economics of “consolidation” to be precise. It is nothing more than a strange coincidence that as many as nine States will be going to the hustings later this year and that the next Lok Sabha elections are due next year. And also that the farming community in this country of ours forms the largest electoral vote-bank.

Additional reforms

The 2007-2008 Economic Survey does not speak of “consolidation” or a special Rs 60,000-crore effort at extending the inclusiveness of growth, which in any case ought to be the bottom line of any growth process in a country as varied and geographically extensive as India. On the contrary, it focusses specifically on “additional reforms” if the growth rate is to enter the double-digit phase. The 2008-2009 Budget is bereft of any such reform flavour, and, who knows, perhaps the looming elections are an important reason for the omission. Of interest also is the fact that, going by current indications, the nuclear deal with Washington will probably see the light of day sooner rather than later, which in effect means dumping the Marxists as an alliance partner. With the Budget vibes clearly in favour of the Congress Party, the Marxists will find it difficult to upset the UPA applecart at this juncture by peremptorily withdrawing support from the Government.

In other words, despite the weighty economic rationalisation of this year’s “revolutionary” Budget proposals, it is probably nothing more than a political master-stroke dealt not so much by the Finance Minister but by the top leadership of the Congress Party, which has its sights firmly set on the elections ahead. Of course, the strategy may not succeed, but then the party, given its current performance, hardly has any other option up its sleeve in its effort to get back into the driver’s seat.

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