A nuts-and-bolts Budget

Venky Vembu | | Updated on: Jul 12, 2019
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For all its focus on the polestar of a $5-trillion economy, it lacks direction and resolve

The rules of one-day cricket matches, as the World Cup — which concludes tomorrow — bears out, are heavily weighted in favour of batsmen. Everything — from the fielding restrictions during the PowerPlay sessions, rules that cramp bowlers (with free-hit provisions and limits on bouncers) to even the state of the pitch — is designed to incentivise muscular batting and the maximisation of sixes. Given this framing, matches can sometimes be decided in the first 10 overs of an innings. A thunderous start, of the sort that the English openers provided their team with in their June 30 league match against India, can put a team on the path to victory. The more leisurely 28 for 1 off 10 overs that the Indians scored in the same match laid the foundation for eventual failure. In that sense, well begun is well and truly half the job done.

The playing field of Edgbaston may well be a long way from the North Block office of finance minister Nirmala Sitharaman, but the lesson from the first applies with just as much validity to the second. However, the framing of Budget 2019, the first from the Narendra Modi government after its return to power in May with an emphatic electoral victory, suggests that that lesson appears not to have been internalised at all.

With the engines of the economy ticking down, with the space for fiscal expansion severely limited owing to the spending excesses of the past, and with the compelling need for resource mobilisation to bridge the revenue shortfalls, she had the extraordinary opportunity to score big early on. An enfeebled Opposition in Parliament — the nearest thing to the PowerPlay field restrictions — diminished the downside risks of going over the top with courageous policy proposals. If she needed intellectual inspiration for such an endeavour, she could have drawn some from the Economic Survey, released only a day before the July 5 Budget, which uncharacteristically drew on the wisdom of libertarian economist Friedrich von Hayek and economic philosopher Adam Smith, and quoted them favourably.

What we got, instead, was an innings that more closely resembled Sunil Gavaskar’s 36 off 174 balls in a 1975 World Cup match against England: A dogged effort that was characterised by timidity and an utter lack of urgency that was ill-suited to the compelling circumstances of the moment.

The problem with excessive policy caution so early on is that it heightens the risk that when the time for giveaways does come — as it inevitably will, later in the tenure and closer to elections — the government will have little to show for itself.

To give credit where it is due, though, the Budget did go some way in addressing the liquidity concerns of well-performing non-banking financial companies, and more broadly the credit squeeze that was cramping small enterprises. It also made some attempts at freeing up elbow room for a disinvestment process — although the government’s record on this front during its earlier term doesn’t exactly inspire confidence that it is committed to the spirit of the disinvestment effort.

The articulation of a mission to provide water on tap to every household bears the mark of PM Modi’s personal imprint, but it at least has the merit of being a desirable focus, as compared to the excessive preoccupation with achieving a $5-trillion economy by 2024. There is nothing inherently wrong in setting a stiff performance target, but in the absence of foundational structural reforms, attempts to engineer ‘growth by diktat’ are often accompanied by perils — as India’s own post-2008 economic history establishes.

The financial system is yet to fully recover from the pile-up of bad loans — the consequence of profligate lending of the past — and the concern is that when the liquidity taps are opened again, a similar cavalier spirit will prevail.

It is in that context that the recapitalisation of public sector banks to the tune of ₹70,000 crore must be seen. The move may have been generally welcomed to the extent that it eases liquidity strains, but in the absence of earnest efforts to ensure better governance, it may amount to throwing good money after bad, which sells taxpayers short.

Just as disquieting is the reading that the Budget appears not to have paid sufficient heed to some of the manifest pain points in the economy, notably the agrarian distress, and the slump in consumption demand. And although FinMin mandarins may have imagined that they have been artful in their resource mobilisation efforts, the stock market’s panic-driven response to some of the more punishing proposals may have effectively weakened the more ambitious revenue generation endeavours. The finance minister’s assurance that the government wasn’t quite a marauding elephant and would be satisfied with a few mounds of rice — and not trample the paddy fields — hasn’t been well-received.

In the final analysis, the Budget’s biggest failing is its incapacity to chart a credible roadmap to get the economic engines humming, and its focus excessively on nuts-and-bolts policy minutiae, not all of which may yield productive results.

For all the earnest focus on the polestar of the $5-trillion economy, this was sadly a Budget singularly lacking in resolve.



Venky Vembu is Associate Editor, BusinessLine;


Published on July 12, 2019

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