Comment

Time to start delivering

Ashok Desai. Illustration: B. Rajesh  

The Bharatiya Janata Party’s victory in the general election last year was a dream come true. It could be forgiven for thinking that the historically high growth rates of 2008-10 were a reward for A.B. Vajpayee’s sage stewardship snatched away by the Congress. It watched in frustration as the Congress branded the gifts of growth with the names of Congress leaders and squandered them on the masses, in food subsidies and job schemes. Its strategy of buying the votes of the poor seemed unbeatable; it took the BJP a decade to find an answer.

It found one in a torrent of words from an indefatigable new leader who left behind his own achievements in the service of Hinduism and stole the Congress horse called development. The promise could be put off for a while; Mr. Arun Jaitley used his interim budget largely to replace beneficiaries of the previous regime with favourites of his party. But now it is real budget time — and time to begin delivering on the promise. The masses who bet on Narendra Modi and the classes who filled the BJP’s electoral treasure chest expect dividends.

Ambitious strategy

Apart from being a breadbasket, the budget is also the Centre’s prime instrument for steering the economy. In his budget in July, Mr. Jaitley ignored this aspect; he left the projected fiscal deficit ratio unchanged and left out economic incentives. He could have given an excuse, that the direction of the economy was unclear. Before he took over the reins, the Central Statistical Office had published figures which showed that growth was headed downwards. But soon it revised them; the new figures showed no clear direction. So, Mr. Jaitley could forget economics. But that luxury disappeared in November, when he got Arvind Subramanian as chief economic adviser.

Mr. Subramanian wrote in the Economic Survey, “The macroeconomy has been rendered more stable, reforms have been launched, the deceleration in growth has ended and the economy appears now to be recovering, the external environment is benign, and challenges in other major economies have made India the near-cynosure of eager investors.” The time had come to attempt rapid, long-term growth. The budget could be the instrument to propel the economy into an era of stellar growth.

The resources for such an ambitious strategy had to be found; but there too, the government was lucky. Mr. Jaitley projects growth of 8 per cent in the coming year; together with inflation of 3-4 per cent, GDP in current prices should go up by 11-12 per cent. Government revenue should also go up by a similar percentage. But the budget figures show a projected rise of only 1.4 per cent. Mr. Jaitley has given no significant tax concessions, so the difference is not due to loss of revenue. Where did he hide the rest? The answer is that thanks to the orders of the Finance Commission, States’ share of Central revenue is going up by a massive 55 per cent, from Rs3.38 trillion to Rs.5.24 trillion. So the Centre is going to be considerably poorer in the coming year.

Where to spend

When a government is short of money, the expenditure it cuts first is on capital investment. Current expenditure has beneficiaries who would protest if they were deprived of their doles, whereas capital expenditure goes to new sellers of new capital goods, who can be cut off easily. So the Central government will spend relatively more on social programmes, and much less on investment.

Mr. Jaitley had some further options. The BJP, which owed nothing to the UPA’s social benefit schemes, could close them down, and use money for growth promotion. And if it was more ambitious, it could run a higher fiscal deficit. The deficit of 4.1 per cent expected this year is a historical low. Inflation has fallen, and could go down further if the government stopped buying unlimited quantities of food grains at ever higher prices. If it did that, it would not have to worry about the inflationary impact of larger deficits.

What could it spend on? The electric power industry is in dire shape, and could do with massive investment in improving the technology and network. The Centre could also spend on creating an integrated transport industry across land, air and water. And, finally, the financial industry is in a mess. The Financial Sector Legislative Reforms Commission made excellent recommendations two years ago; the government should implement them. In particular, the government should recapitalise the banks or privatise them. These are only a few of the measures one can think of.

Anyway, Mr. Jaitley did not refer to these things, or to anything else particularly new or innovative. He continued all the social sector schemes of the preceding UPA governments, and added a few new ones named after BJP leaders. If it were not for them, his budget could have been mistaken for one by his equally distinguished fellow advocate, P. Chidambaram.

Policy announcements

The budget is also an opportunity for the government to announce important policies. How did Mr. Jaitley do on that? An important initiative in my view is the funnily named JAM Trinity (Jan Dhan, Aadhar and Mobile). The BJP, after coming to power, launched the cash transfer scheme called Jan Dhan. The intention was that the numerous transfers in kind to various kinds of the poor and the deserving that the UPA had started should be converted to cash. The UPA tried to use banks to transfer the money: it was to be transferred by banks to their agents in villages, called business agents, who were to hand it over to the poor. The business agents found it more convenient to pocket the money, and the banks, being owned by the government, did not want corruption scandals. So they were loath to appoint business agents, and the scheme largely failed. There was an easier way which was invented in Kenya — where it is called e-paisa — and which used mobile phone calls to transfer money. It spread to South India, but was then killed by the Reserve Bank, which is allergic to informal banking. Now, Mr. Jaitley plans to revive it. The government has used Aadhar to give people identity; their Aadhar numbers will be matched with their cell phone numbers, and the two together will be used to transfer social assistance money — which the BJP has renamed Jan Dhan — to them. It would be much simpler to create a new currency to be carried in mobile phones; but that would be too simple for an ancient, advanced country like India.

(Ashok V. Desai is an economist who has worked in five countries on innovation, telecommunications, energy, and information technology at various times.)


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Printable version | Jan 25, 2022 11:53:15 PM | https://www.thehindu.com/opinion/op-ed/time-to-start-delivering/article6946283.ece

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