The recent Ratings Services Global Financial Literacy Survey conducted by Standard & Poor’s shows that India scored a low 24 per cent among the BRICS countries (Brazil, Russia, India, China and South Africa) against the average of 28 per cent and the highest of 42 per cent (South Africa). The study attempted to capture the percentage of ‘financially literate’ adults based on four concepts: risk diversification, inflation, interest calculation, and compounding.
The results are rather disappointing given the perception that Indians have a natural affinity for all things financial. Take, for instance, the Union Budget, which is a national obsession. The manner in which Indians intuitively understand the role of the Budget in their daily lives — from the excise duty on cigarettes to what items are exempted from service tax — is very difficult to explain to someone from outside the country.
Towards sustainable growth Yet, interestingly, over the years the Budget seems to have lost some of its sheen as an important policy document. Gone are the days when captains of industry would queue up in North Block with their long wish lists in the run-up to the Budget. The number of speculative media reports on what the government is likely to rollout or scrap in the Budget is also on the wane. An analysis of this development reveals several interesting facts.
One, India seems to be slowly focussing more on a long-term fiscal policy rather than on the annual Budget. Such an approach, experts say, not only imparts economic stability but also ensures continuity and sustainable growth. Says Charan Singh, Reserve Bank of India Chair Professor of Economics, Indian Institute of Management, Bangalore: “When the economy is young, many decisions have to be made in a dynamic manner. Now that there is a flood of information on a daily basis, waiting for one complete year [for the Budget] does not make any sense. Also, in a country that is on an ascending curve, mid-year adjustments should be allowed to be made.”
If the recent big-bang mid-year announcements, such as the government’s decision to limit the LPG subsidy to those earning Rs.10 lakh or more per annum, or the direct transfer of kerosene subsidy, are of any indication, we seem to have firmly set ourselves on the path of continuous policy change divorced from the fanfare that the annual Budget entails.
T.S.R. Subramanian, a former Cabinet Secretary, concurs with the view that Budgets have been reduced to a mere accounting exercise: “Earlier, the import policy could make or break industries. And the power of the Budget used to be in the taxation rates and quantitative restrictions. But over a period, the rates have come down and so has the room for manoeuvrability. Delinking important decisions from the Budget is nothing new. We should not forget that P.V. Narasimha Rao announced his landmark reforms [in 1991] 15 days before the Budget.”
Adds Dr. Singh: “It is imperative to have both a fiscal vision and a fiscal mission. For instance, bills such as the GST would fall under the fiscal vision category. These take many years from conceptualisation to implementation given our vibrant multi-party system. But once the vision is drawn, we have to go into mission mode with two- to five-year horizons. With annual budgets, many projects slow down or stop by February and resume only after the monsoon. As Parliament sits often, the sanctity of annual budget-making could easily be diluted and quarterly statement of accounts should be presented.”
Who calls the shots? An impression is also gaining ground that the Prime Minister’s Office (PMO) has emerged as the fulcrum of economic policymaking, with the Finance Ministry playing only second fiddle. Since economic revival is one of the main planks on which the BJP successfully fought the general election in 2014, and given Prime Minister Narendra Modi’s reputation as a hands-on administrator with a keen business sense, this is only to be expected.
Dr. Singh sees nothing wrong in this arrangement: “The BJP fought the last election in presidential mode. In my surveys, I found that in many parts of India, the Jan-Dhan Yojana is called the Modi Yojana. So, he has to deliver. Also, with the Prime Minister directly writing to commercial banks on the Jan-Dhan Yojana, it is clear who is calling the shots.”
However, Mr. Subramanian says that though the widely talked about PMO “overreach” could indeed be the case with other ministries, the PMO currently does not have “finance experts” who could commandeer the Finance Ministry.
And what does this hold for the fragile peace (or lack of it) between the Finance Ministry and the Central Bank? Does a seemingly weak Finance Ministry further skew the equation in favour of a dominant Central Bank? Opinion seems to be split. For every person who supports an independent Central Bank, there seems to be a naysayer who questions the moral authority of the institution.
Dr. Singh, in fact, cautions against what he sees as a “camel’s nose in the tent” phenomenon. He says many of the Central Bank’s responsibilities, such as minting of notes and oversight of the banking industry, are merely a delegation of authority. In a democracy, he adds, the final authority should rest only with the elected representatives.
However, with elected representatives often finding themselves woefully short of public trust, there is also a growing clamour for leaving specialist jobs to professionals who do not have any constituency to pander to. But more than the theoretical underpinnings of the various positions and their merits, what is fascinating is how the character of an institution often ends up mirroring the character of individuals who steer it or who could influence it. From Jawaharlal Nehru to Narendra Modi, it’s an interesting study.
vasanth.srinivasan@thehindu.co.in
This article has been corrected for a factual error
