India’s finance minister Arun Jaitley is the calm voice at the top of Narendra Modi’s Bharatiya Janata Party-led government. His role is usually not to worry so much about the economy, but to try to present a sense of sanity and reasonableness as the government’s spokesman and information minister, while Modi avoids making many comments apart from mega rally speeches, and Amit Shah, the party’s president, exudes fear-inducing Hindu nationalism.
Jaitley performed both the economy and information functions today, March 1, with his annual budget speech that ran for just over 90 minutes. He focused heavily on helping the rural poor with schemes that aim to begin to double farmers’ incomes by 2022, and on accelerating investment in infrastructure, especially irrigation.
That should, the government hopes, increase consumer demand and economic growth, while also (though Jaitley of course did not say so) conveniently countering the Congress Party’s opposition line that the government is “not pro-poor” at a time when state assembly elections are looming.
Three days ago, Jaitley was performing the same calming role in an often screamingly angry two-day parliament debate after caste-based riots in the nearby state of Haryana had led to widespread violence and looting that cut water supplies to Delhi. The previous week had been dominated by clashes and protests in Delhi’s Jawaharlal Nehru University with rough police action and court cases, encouraged by government ministers that irrationally accused students of sedition.
Today’s budget has therefore come when the image of India and the 22-month old Modi government has been damaged, and something is needed to revive confidence. Jaitley’s speech of course dealt with economic confidence, but it is really more important for the government to boost confidence in its politics and to show that it is not following a pre-planned policy of social divisiveness and restrictions on the freedom of speech aimed at strengthening Hindu nationalism and at enhancing the BJP’s Hindutva appeal.
Two friends visiting Delhi in the past week from the UK and US have told me how, viewed from abroad, India looks the best hope among major economies with its 7.6 percent growth at a time when other countries have problems. But, they both added, the social unrest and the divisive Hindu nationalist and repressive image of the government worries investors.
It is against this background of social unrest and the government’s image problem that Jaitley made his speech. His most important macro-economic announcement was that he is not relaxing the government’s target of reducing the current 3.9 percent fiscal deficit to 3.5 percent of gdp in the coming year, despite being given conflicting advice that stimulating growth was more important. Jaitley’s economic advisers, who produced the finance ministry’s annual economic survey at the end of last week, are suggesting that this year’s official 7.6 percent (some critics say inflated) growth figure might drop to 7 percent in the coming year instead of rising.
Jaitley presented what he called a “transformative agenda”, with “nine pillars” covering benefits for farmers, rural communities, social issues such as health care, industry and skills, infrastructure, financial sector reforms, and governance and ease of doing business.
Proposed spending included US$2.5 billion in 2016-17 on delayed irrigation projects, $32 billion on rail, road and other infrastructure. Another $3.6 billion was announced to begin re-capitalizing financially crippled state banks that have been hit by their often politically-inspired largesse of allowing massive bad loans to over-leveraged Indian companies.
But there were few significant economic reforms in the speech. Foreign ownership through direct investment is to be allowed in food processing and marketing businesses. The foreign portfolio investment limit in public sector corporations (apart from banks) is to go up from 24 percent to 49 percent and 15 percent foreign investment will be allowed in stock exchanges, up from 5 percent.
Various measures were aimed at improving the ease of doing business in India’s rule-bound heavily bureaucratic environment, and a proposed bankruptcy code will ease the closure of bankrupt financial firms.
Three days ago, Jaitley was performing the same calming role in an often screamingly angry two-day parliament debate after caste-based riots in the nearby state of Haryana had led to widespread violence and looting that cut water supplies to Delhi. The previous week was dominated by clashes and protests in Delhi’s Jawaharlal Nehru University with rough police action and court cases, encouraged by government ministers, that irrationally accused students of sedition.
Also included were a complex array of tax measures including some relief for small businesses, and an attack-tax avoidance, plus a fresh effort (following a largely unsuccessful scheme last year) to persuade taxpayers to reveal undeclared assets. Jaitley said that companies would not be hit, as was done in the past, by retrospective tax demands, but he failed to reassure companies such as Vodafone that are involved in outstanding multi-billion dollar cases.
Overall, the budget sounded like a long list of worthwhile innovations and incentives, though critics said it lacked an overall big idea. Palaniappan Chidambaram, the last Congress government’s finance minister, noted that there had been no mention of exports (which was certainly odd) and that there was virtually nothing to encourage private sector investment.
Exports and the private sector however were not the targets of this politically targeted budget, which was aimed at shifting the government’s image from being pro-corporate to caring for the rural poor.
Now Jaitley’s job is to show, and to persuade his prime minister to show, that the government also cares for India being an open and free society without the repressive Hindu nationalist overtones.
John Elliott is Asia Sentinel’s New Delhi correspondent. He blogs at Riding the Elephant.com which appears on Asia Sentinel’s homepage at the bottom right.