Budget 22: Numerically Honest, But Politically Uncharted & Risky

Video Producer: Shohini Bose

Video Editor: Vivek Gupta

Camera: Shiv Kumar Maurya

Is your head spinning with the wildly opposing reactions to Union Budget 2022?

Is it a revolutionary break from the past, so Vishwa Guru (world leader) India’s history begins now?

Or is it a wastebasket of words and jargon, signifying little?

If you turn to Twitter for an answer, your head will spin even more dizzily:

• Ruling Party Leaders: it will change the scale of India. By FY 26, we shall be a $5 trillion economy

• Opposition Leaders: zero-sum, unabashedly capitalist, a Pegasus-spin document

• Pro-government industrialists/economists: stable, progressive, predictable, future-focused, inclusive

• Angry activists/economists: why slash subsidies? Why cut health outlay in a pandemic? Has the government given up on poor citizens, farmers, unemployed youth?

We're Brought Up on Complex Budgets

Frankly, India’s confusion is legit. Because we are a complex people brought up on a legacy of complex budget documents.

The world first discovered our complexity in the early 1990s when India had just begun liberalising her economy. In a celebrated survey, foreign investors were confounded by India’s youth, who looked “rebellious” but were “closet conformists”:

• They were aspirational about wealth yet hankered after government jobs

• They loved foreign brands yet trusted the publicly-owned Air India and MTNL

• They were beginning to enjoy pre-marital sex in their early teens yet believed completely in marriages arranged by parents

Indians finally discovered – in the first such structured, empirically validated exercise – our astonishingly complex Jekyll-and-Hyde character.

India’s Mixed-Up Budgets

Small wonder then about our proclivity for complex, bi-chromatic budget documents, half-socialist and half-capitalist:

• A tax cut for rich companies together with an income transfer to poor farmers

• A health insurance scheme for urban poor along with a land subsidy for corporate, profit-seeking hospitals

• A price cap on single-screen cinema tickets along with incentives for constructing skyscrapers by forcibly evicting slum-dwellers

You see, we’ve come to expect shades of Dr Jekyll in the benevolent-and-pro-poor Vitta Mantri (Finance Minister), and equal hues of Mr Hyde in the avaricious-and-pro-capitalist ‘Madam’ Finance Minister!

So, we had begun to love our budgets because they mixed unbridled capitalism and bleeding-heart socialism in a single dense, indecipherable, bulky document.

M/s Modi & Sitharaman Smashed That Model

That was the reality until yesterday, the First Day of February, Circa 2022, when M/s Modi & Sitharaman broke this cozy consensus. Unequivocally, they plumped for growth over social redistribution.

Unflinchingly, they said we believe in “trickle-down economics”, ie, if the richer sectors of the economy prosper, the good times will slither down the crevices to help the poor.

In fact, they wrote a unique budget which can be captured in a single line (no need to trudge through hundreds of sheets): cut subsidies by 25%, increase capital expenditure by 25%, and hit the eye-catching figure of $100 bn of public capex (knowing this government’s penchant for grabbing headlines, I am sure the Rs 7.50 lakh cr number was inspired by its dollar equivalent of One Hundred Billion US Dollars!). That’s it. Stark. Simple. Unambiguous. Also, unapologetic.

“But isn’t such a sharp break from the past a fit case of economic treason?” critics ask in rage. Sure, it’s perfectly okay for opponents to slam the government for a policy they disagree with. Equally, it’s the government’s prerogative to articulate a clear, heretical political philosophy that veers away from a past consensus.

This has made Union Budget 2022 a highly unusual document. It fearlessly disregards a troubled legacy of failures in other economies that had chosen a “growth trickle-down” route in the past. And that exposes the Modi government to future political wounds. But for now, it has put out an unambiguous, transparent doctrine of “we are aiming for growth today, social welfare will follow”. If it fails, it will pay a big political price, vindicating its opponents. So be it.

But Is This the Beginning of History?

So, now you will ask whether I believe in the “beginning of history”? Honestly, history could possibly be rewritten by just five crucial data points that I would focus on without getting trapped in the welter of rhetorical numbers that populate the budget:

• Record buoyancy in gross tax revenues, collecting about Rs 3 lakh crore more than estimated

• Record buoyancy in annual exports, which could cross $650 bn for merchandise plus services

• Record amounts of foreign exchange reserves, at nearly $650 bn

• Record levels of stock market capitalisation, at about $3 trillion, triggering productive capital formation across sectors

• Record of privatisation in the current FY, even though, ironically, the finance minister eschewed the ‘p-word’ and missed her target by a record amount! Yet, the fact that Air India’s sale was celebrated, and Neelachal Ispat was quietly sold, both to the Tatas, are landmark events in this otherwise comatose segment of our political economy, giving cause for guarded optimism

We're Nowhere Near Becoming a Vishwa Guru

Beyond the above data points, India’s destiny as a potential Vishwa Guru lies outside the Union Budget. It principally devolves on three other pillars:

• India creates a modern welfare state providing quality education, healthcare, and social safety nets for its vulnerable people

• India opens up to the world by lowering tariffs, getting integrated into global supply chains, and having the wherewithal to compete with foreign giants. Unfortunately, by erecting higher tariff walls and creating production-linked incentives (PLIs) for “home-grown champions” to artificially thrive within protected boundaries, we are going in the opposite direction

• India ruthlessly cleanses the “regulatory cholesterol” that is the fountainhead of corruption and the killer of private initiative/productivity. Let us vow that GST inspectors cannot simply walk in and seize company funds; that decades’ old tax cases are not whimsically reopened and hapless citizens prosecuted; that victims of egregious state action – for example Vodafone, Cairn, Devas, Amazon, among many others – are not denied arbitral awards won in overseas courts; that courts do not allow the arrest of a retired bank chairman or prosecution of a former disinvestment minister for bona fide actions taken years ago; etc, etc, etc.

So dear reader, in essence, Hanus Dilli Door Ast (Delhi is far away), ie, we are nowhere near becoming a Vishwa Guru unless we can double down on all of the above.