India’s Jaitley Designs Roadmap for Next Fiscal Year
Jaitley's budget box
Budget wins on the economy but is weak on inspiration
Arun Jaitley, India’s finance minister, had three main tasks in his budget speech that he delivered on Saturday, the traditional Feb. 28 date. One was to manage government finances, reduce spending deficits and curb inflation. The second was to boost infrastructure, private sector investment and growth, and introduce other reforms.
The third, and politically the most important, was to revive the flagging image of Narendra Modi’s Bharatiya Janata government, which has in the past four months lost the sheen of last year’s landslide general election victory.
The finance minister managed well on the overall economic front with inflation at around 5 percent, manageable though somewhat higher deficits, and economic growth that he forecast at 8-8.5 percent next year – though that is a misleading figure because the Central Statistical Office recently reworked its estimates and raised current growth by about 2 percent above the previously announced 5 percent.
Arvind Subramanian, the finance ministry’s chief economic adviser, has said he finds that “puzzling”, and Arvind Panagariya, head of the revamped planning commission, said yesterday the source of the increase needed to be identified.
Jaitley also introduced tax reforms and did well on infrastructure. There is to be a national investment infrastructure fund, plus new financing and tax-free bonds for roads, rail and irrigation schemes. He is reworking arrangements for public private partnerships (PPP), which were mishandled by the last government and became often-corrupt blockages to development instead of boosting viable investments. Jaitley plans to rebalance risk with the government bearing a greater share, which is in line with the effective highway building programme of the last 1999-2004 BJP government.
It is too early to decide whether Jaitley has succeeded on the government’s image. What was needed was a budget that would show that the government elected nine months ago with a landslide victory is capable of making India work and succeed. The image it has been developing is of a less-than-effective administration cluttered with determined Hindu nationalists bent on furthering their religion, led by a prime minister who often seems better at performing on the international scene than on getting to grips in Delhi with the detailed work of reforming how Indian functions.
Jaitley therefore needed to build a vision of how all his measures would lead to a more efficient growth-oriented future – which he failed to do. He had phrases such as “the world is predicting that [this] is India’s chance to fly,” and that the speech was “a significant opportunity to indicate the direction and the pace of India’s economic policy.” He claimed it provided a “roadmap for accelerating growth, enhancing investment and passing on the benefit of the growth process to the common man, woman, youth and child,” but that was in the first couple of minutes of a 90-minute speech. After that, the theme got lost in the detail.
The government needs someone who could both inspire and carry conviction, standing between Modi with his powerful oratory and catch phrases and Jaitley’s lawyerly precision. This was done by Manmohan Singh when he was a reforming finance minister in the early 1990s, and to some extent it was also done by Palaniappan Chidambaram, the last finance minister.
Comment on the budget so far has been bogged down in businessmen’s inevitable (given that corporate tax is being reduced) applause for what Jaitley has done, and the opposition’s insistence that the budget is “anti-poor” and “pro-corporate” – corporate being a dirty word because businessmen are easily cast as crony capitalists bent on seeking favors from the government.
A BJP spokesman tried to correct that on television after the budget speech when he said, probably accurately, that “we are not pro -corporate but pro-enterprise.” In a similar vein, Jaitley told the parliamentary opposition two days earlier in a speech on the government’s controversial Land Bill: “Don’t create an environment in the country in which infrastructure and industry become bad words.”
This illustrates the left-right divide in Indian politics at a time when the opposition, led by the Gandhi family’s leftward leaning Congress Party, plays the pro-poor card to challenge the government, even though that delays what the country needs – strong economic growth and a revival of development projects. (The Congress leadership has been hit by Rahul Gandhi, party president Sonia’s son and heir-apparent, vanishing on a two week “sabbatical” just as the parliamentary budget session began “to reflect on recent events and the future course of the party’’.)