It is not often that Prime Ministers publicly state before a Budget that they — and not the Finance Minister — are on test. In the case of the Union Budget for 2016-17, this is what Narendra Modi did, and so we have to presume that his is the hand that mostly wrote the main budget proposals. From the rousing welcome the market gave the Budget, one has to also conclude that Modi has got something right, unlike the previous two that got a lukewarm response. The only idea he may have to backtrack on may be the idea of taxing 60 per cent of the EPF during withdrawals.
Even though the Budget was widely seen as a corrective to the NDA’s failure to respond to growing rural distress, which was accentuated by two consecutive years of sub-normal monsoons, the broad thrust actually remained the same as the 2015-16 Budget: trying to get the growth engines revved up using public investments in rail, roads and infrastructure without losing track of the need for fiscal consolidation. If the markets actually rooted for this Budget, it is primarily because it saw the government’s fiscal feat as good when it had huge payments to be made to government employees under the Seventh Pay Commission and the implementation of OROP for the armed forces.
Here’s what the Budget tries to do, and what it does not try to do. First, it hopes to stimulate growth by public investments to the tune of over Rs 2,18,000 crore in roads and Railways, with additional investments in rural irrigation. The strategy is investment-led. Vajpayee’s NDA created more jobs than UPA (I & II) because of investment in public infrastructure. Modi is trying to replicate the same by extending the idea to Railways and irrigation.
The second element is stimulation of entrepreneurship to create jobs — and encouragement to organised businesses to hire more by giving them relief on employer contributions to pensions for three years. This is the reason why his government is encouraging loans to MSMEs through Mudra Bank, and the Budget proposal to encourage Dalit entrepreneurship, and Startup India. While MNREGS remains the rural job safety net, urban jobs depend on making MSMEs into job creators. In this Modi is surely right, big business has stopped creating quality jobs a long time ago.
The NDA’s biggest idea — borrowed a bit from the UPA, but implemented more rigorously — is happening outside the Budget. Despite his alleged right-wing orientation, Modi is actually taking his party to the Left, and the focus of reform, especially on subsidies, is better targeting and not reducing subsidies. He has already saved a huge sum on LPG using the JAM trio and this could be extended to kerosene, food and fertiliser over the next two years. This is why the government plans to legislate Aadhaar as a money bill, so that the courts do not put a spanner in the works. A money bill will also prevent the Congress from jamming up the law in the Rajya Sabha. JAM may also be used in the final years of NDA to put money directly in the hands of the farmer, which is where the proposal to double farm incomes in five years could materialise as income support or unemployment allowance. The most eloquent promise made is the one Arun Jaitley did not make, there were no tall promises on the GST. The Modi government has clearly given up on trying to push through big reforms using the legislative route, given the heated-up atmosphere in Parliament these days.
The central message of the Budget is that the NDA will rely on executive decisions, budgets and a bureaucracy in mission mode to deliver on its electoral promises. Parliament is for public entertainment only.
The author is editorial director of Swarajyamag.com
Guest Author
The author is editorial director of Swarajyamag.com
