A hole in the heart of the budget
A Union budget can help a ruling party win a general election, but only if it is a first budget, not its last. Voters understand the difference between a policy and a promise or an alibi. We are so conditioned to think about a government as either stable or unstable, that we ignore a more familiar fact: in its last year, every government in a democracy enters the zone of uncertainty, for no one dare take re-election for granted. UPA2 looks a shade worse than uncertain; it already looks depressed. The years of fluff and flounder have taken their toll.
You can place a silk hat over P. Chidambaram’s head, and a flute between his lips; he will become neither magician nor god. There is no point blaming him for doing little, for there was little that he could do. He is finance minister of a government that has run out of finance.
Chidambaram cut spending with quiet and perhaps even courageous will over the past few months in order to reduce the punishing fiscal deficit. He has slashed plan expenditure by some Rs 91,000 crore. That is not enough, because politics has forced him to make obligatory allotments, as for instance in the rural sector. He hopes to reach February 2014 on hope. For starters, he hopes that ministries like rural will not actually call for the money he has slotted on paper, because they have not devised the means to spend it.
But his biggest hope is that the economy will grow by 6%, raising revenue, rather than the projected 5%. If the past is any evidence, actual figures could be way below. In 2011 the economic survey predicted 7.6% growth; we got 5%. There is no visible reason why a gloomy economy should shift into an optimistic curve, particularly since the government has entered the zone of uncertainty. Investors might find it more reasonable to wait to see what the general election brings.
Those who cheered the finance minister, both journalists and politicians, consistently argued that this was the best he could do in the circumstances. But no one seemed interested in logic: who created these circumstances? UPA has been in power for nearly a decade. It can no longer blame anyone else for mismanagement.
A sort of forced cheer went up because Chidambaram did not succumb totally to the siren of populism. Once again, whose populism did he save India from? He was not under pressure from BJP, Marxists, Mulayam or Mamata to rig his proposals with handouts. Populism was a Congress demand. The party was eager to contest the next general elections armed with a National Food Security Bill, and credit had already been given where it always is in such situations, to Mrs Sonia Gandhi. Has Chidambaram then saved his budget from Congress?
Chidambaram’s memory is not short. He knows, even if he does not discuss, the price paid by India when in 2008 he wrote off rural debt, introduced NREGA, and raised government salaries. Today’s crisis began with that spending spree. The fiscal deficit rose to 6% of GDP from 2% the previous year; and kept rising to the point where India is threatened by junk status.
Conscious of history’s judgement, Chidambaram will not allow that to happen. This may require a heavy axe by next August or September. An axe is the politician’s biggest enemy on election eve in the kind of handout democracy we have become.
The hole in the heart of this budget was the absence of a big idea. Chidambaram desperately needed a radical spine in his speech; even a minor bone would have helped, anything to electrify the business environment, and inspire a resurrection of pro-growth sentiment in a way millions of bureaucratic words can never do. Here is a thought.
The finance minister hopes that disinvestment will fetch Rs 55,848 crore. He could have begun by putting Air India on the block, at whatever price the market was ready to pay. Instead he added Rs 5,000 cr for this mismanaged airline, after handing out Rs 6,500 crore last year: and the estimate is that it will bleed for at least a decade at a cost of some Rs 30,000 crore of taxpayers’ money. Here is a better idea: shut down the civil aviation ministry, leaving only a department for aviation safety headed by a professional. If Kingfisher can be grounded by market forces, why not Air India? The cynical answer is that Air India is the only airline ever ready to upgrade politicians and bureaucrats. This may even be true. The concept of a “national carrier” is surely as outdated now as nationalised steel mills and indeed Maharajahs. If the Prime Minister needs an aircraft, we should get one for him; why keep an airline alive just to keep a Prime Minister in thin air? We persist in what might be called an Aeroflot mentality.
A government on its last legs can only totter its way through the last mile.