A Mea Culpa budget

The budget is expected to have all the elements that will empower the government to say, ‘We are pro-poor’
This budget is expected to echo the sentiment that Modi’s government is not pro-rich (Photo courtesy: PIB)
This budget is expected to echo the sentiment that Modi’s government is not pro-rich (Photo courtesy: PIB)

The prologue is long and clear. Never before has a government made such a well-scripted disclosure of the country’s most guarded political document, the Union Budget. And the move is due to both political and economic exigencies.

Amidst dwindling electoral fortunes (the loss in Bihar elections), economic slowdown and worse, a perception crisis over being anti-poor, Prime Minister Narendra Modi has to make a counter statement through the budget, an event that can outrival any other occasion in public attention. This budget is expected to echo the sentiment that Modi’s government is “not pro-rich and not against rural development”.

Exactly a month before budget day, on January 29, Modi had tentatively outlined the core features of the budget at the Economic Times Global Business Summit. "Some subsidies may be necessary to protect the poor and the needy and give them a fair chance to succeed. Hence, my aim is not to eliminate subsidies but to rationalise and target them," he had said.

His next statement was, however, not expected by many, especially the corporate bigwigs and economists in the audience. He pointed out how any financial benefit for industries is called an incentive or subvention while for farmers, it was derogatorily called subsidy. "We must ask ourselves whether this difference in language also reflects a difference in our attitude. Why is it that subsidies going to the well-off are portrayed in a positive manner?" he asked.

As if working according to a script, the following day, Union finance minister Arun Jaitley repeated the statements. Supporting subsidy and the point made by Modi, Jaitley said, "If you look at the whole structure of the Indian economy, its agriculture sector, particularly in the last two years due to the poor monsoon, has been stressed. Therefore, you need to put funds in that particular sector. Therefore, there would be targeted subsidy."

What the budget will contain will become clear in the next three days.

Change of heart?

The Modi government celebrated the 10th anniversary of the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), terming it as “national pride”. It is a spectacular—and also suspicious—turnaround in Modi’s stand considering that in his first parliamentary speech, he had termed the scheme as a “monument of failure”.

In swift communication with selected media persons, the government circulated a magical figure to further emphasise that it was all for MGNREGA. In the current fiscal, the government has spent Rs 41,700 crore on the scheme, the highest ever in a year since its inception a decade ago. 

As a follow-up, the prime minister addressed a series of hugely attended farmers’ meetings in Odisha and Madhya Pradesh. He launched the Pradhan Mantri Fasal Bima Yojana and claimed that his was the first government to launch such a programme.

It is clear that Modi has decided to give himself and his government an image makeover. According to media reports, his participation is hands-on in the budget preparation with the Prime Minister’s Office (PMO) directly working on it. As a senior rural development ministry official puts it, “We have a direct query from the PMO on even district-level issues concerning rural programmes. There is a lot of talk on accounting.”

Just a week earlier, the Union government deployed the finance minister, the minister of state (finance) and four secretaries to interact with the public through media on the budget. Every sound bite they gave was a clue to the budget. And, unfailingly, the effort has been to project a pro-poor and rural tilt to the government’s economic policy. In an unprecedented decision, both finance ministers will meet a group of economists on February 27, only 48 hours before the budget.

Some indications on what the budget might contain have now become clear. For example, we expect the Direct Benefit Transfer programme to be extended to food subsidy. We also expect that the irrigation budget will be increased by 21 per cent.

However, there is not much clarity yet on benefits to the corporate sector and individual tax payers.

Why does the government need an image makeover?

There are two prime reasons: electoral and economic. With nine state elections expected in the fiscal year 2016-17, the deepening “anti-poor” perception will have to be rooted out. And the Union Budget provides the right opportunity. States like Uttar Pradesh and West Bengal, which will go to polls, are heavily dependent on MGNREGA and rural development funds as they are home to a significant proportion of the poor. In both these states, the BJP is trying to strengthen its hold.

On the economy front, the government must consider rural India to maintain economic growth. Overall, the economy is not looking up and there is already a global slowdown. Till recently, India was reporting almost consistent growth due to a boom in rural consumption. And this was possible due to the huge public spending in rural areas in the last 10 years. Under MGNREGA alone, the government has pumped in more than Rs 300,000 crore in a decade. Close to 60 per cent of this corpus was disbursed as wages in cash to people.  

The government’s idea of boosting private investment to trigger economic growth has failed. Therefore, it has no other option but to increase government spending. It is doing so in the infrastructure sector. But rural spending kills two birds in one stone: it enhances the economy while blurring out Modi’s anti-poor image.

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