Modi’s interim budget reads like a manifesto

The 16th Lok Sabha (the lower house of India’s bicameral parliament) interim budget is one of the most populist in recent history. It is really more political in nature than economic.

As expected, the budget includes several big populist announcements, such as a major income support scheme for farmers, a pension scheme for workers, and income tax relief for the middle class. Prime Minister Narendra Modi has hailed this budget as a framework for the “New India,” a vision document taking the country to 2030.  It focuses on the digitization of government processes and private transactions, expanding rural industrialization with modern technology, and empowering young people to launch enterprises that create jobs. In addition, the government aims to make India a US$10 trillion economy.

This ambitious budget shows that the government is confident that it can energize the nation. But actions speak louder than words. Some of the key objectives that were highlighted in the first budget have yet to be fulfilled, such as job creation, cracking down on black money, improving women’s safety, increasing the minimum support price, etc.  Yet this budget has broader implications for the Indian economy and various sections of Indian society. 

State of the economy  

To analyze the interim budget, we must look at the performance of the economy over time. India has experienced sustained growth under the Modi administration, becoming one of the fastest-growing economies in the world. But there is also a dark side of this growth picture. A 2018 report from Oxfam International concluded that under Modi, a disproportionate share of the country’s wealth has been going to the top 10% of the population. The fact that inequality is rising despite the strong performance of the economy raises serious questions about how gains from growth are distributed.

One of the greatest achievements of this government is that it has made it easier to do business. India climbed from the 142nd position in 2014 to 77th place in 2019 in the World Bank Ease of Doing Business rankings. Yet investment has not grown as expected and some economic indicators show that the government has not performed well overall. There are two macro problems to which the government has not given enough attention – unemployment and the rising number of non-performing assets (NPAs). According to recent data from the National Sample Survey Office, India’s unemployment rate spiked to a 45-year high of 6.1% in 2017-18, despite a promise by the ruling party during the 2014 general election to create 10 million jobs annually.

But considering what is happening in India in terms of the undermining of the credibility and independence of institution such as the RBI, UGC  and the judiciary, the fact that it is easier to do business is not enough to justify giving the government a good report card. The fact that the government cherry-picks indicators that show India in a positive light while completely ignoring negative ones reflects how dogmatic the government’s approach has been. 

An election manifesto?

The interim budget was presented more like an election manifesto than a spending plan. This budget seems to be quite contrary to Modi’s 2014 promise of leading India away from populist schemes towards productive ones. It indicates that the government has not performed well over the last five years. The prime minister has hailed it as the “New India Budget.” The rationale behind this move is that it has something for everybody – a bonanza for the farmers and unorganized sector employees in the form of pension schemes, as well as tax rebates for the middle class. But it’s same old wine in the new bottle – increasing the fiscal deficit to boost consumption, which we saw with the previous government. 

The 10-point vision document for 2030 emphasizes turning India into a $10 trillion economy and making the country clean and green, but it fails to address two of the biggest issues affecting the country – farmer suicides and unemployment. Farmers don’t need financial support of Rs500 (US$7) per month, they need structural reforms in terms of price, incentives, mobility and market accessibility. That will enhance their purchasing power capacity. India’s middle class doesn’t need a tax rebate – it needs employment opportunities.

According to PWC reports, India needs to create around 100 million new jobs over the coming decades to encash its demographic dividend. To create prosperity for these two critical pillars of the country, we need to create a more vibrant industrial sector. But there was hardly any reference in the budget to manufacturing. 

It seems that the prime minister’s vision of the new political economy, which focuses mainly on the private sector, productivity and growth, was illusory. The only question now is how long they can play with the future of nation by continuing to make political promises and choosing to be one giant welfare state in this highly competitive world.