Budget 2018: Treading the fine balance between politics and economics

Later this week, finance minister Arun Jaitley will present his fifth Union budget, the last full budget in this tenure of the National Democratic Alliance (NDA). It will be keenly watched on both sides of the aisle in Parliament, by investors, both domestic and foreign, various interest groups like farmers and the burgeoning middle-class and of course by the armchair analyst.

Not only does it come just a little over a year ahead of what promises to be an electrifying showdown in the 17th Lok Sabha polls and at the beginning of a key election campaign to eight state assemblies, but it is to be presented in the backdrop of a vitiated social environment and an economy that has just initiated baby steps toward a recovery.

Clearly (as I have said in a previous column), this will be Jaitley’s toughest act yet. The finance minister has to tread a fine balance between political and economic interests—which are inevitably, given heightened political stakes, an either-or choice.

Yet, if he gets it right, Jaitley’s last hurrah could be the moment for rewriting the public narrative—which as the just concluded Gujarat campaign showed us has degenerated into vicious name-calling and the creation of a communal tinderbox situation.

His party, the Bharatiya Janata Party (BJP), is desperate for a second wind as it readies to take on the opposition (which could unite if they believe that is the only way to get the better of the new pole of Indian politics) as an incumbent. As a challenger, the BJP-led by Narendra Modi had a field day painting the ruling Congress-led United Progressive Alliance (UPA) as the villain denying people their aspirations. As the incumbent, the anti-Congress rhetoric doesn’t hold as much water any more, especially given that India’s grand old party has been relegated to a few states in the country. The role reversal begs a new narrative. The obvious trick is to showcase the track record of the last three-and-a-half years to argue NDA’s case for a second term. But it can’t be put up as a listicle or a laundry list; instead, it has to be something that people can relate to. This is easier said than done.

Not because nothing has changed. Undoubtedly, the NDA can take credit for attempting serious structural reforms (with strong downside political risks) in the country; some of them, like demonetization, you can quibble with, but not the political will to press through a rules-based regime like the goods and services tax (GST) and tackling the bad debt problem (itself a legacy of the exception-based decisions taken in the past).

Most of the gains accruing to the public from the changes initiated by the Union government are mostly intangible in nature. How do you quantify the benefits of reducing corruption? How do you quantify the gains from better infrastructure? How do you quantify the benefits of replacing your traditional cooking fuel with cooking gas?The one tangible benefit of mass appeal is inflation. But it has been down for two years and the shock value of single-digit inflation after several years of double-digit inflation is limited; worse, rising oil prices are reviving inflationary pressures.

Clearly, a tall ask. The buzz is that the government is working on an ease of living matrix. We got a hint of it after a video was released last week on the PM Modi’s YouTube channel (bit.ly/2EfbJ7w). It showed a typical atomistic middle-class urban family in India tacitly acknowledging the policy changes and at the same time expressing contentment with the accruing benefits. If this narrative catches on, then it would be key in justifying the lack of tangible gains, especially at a time when the issue of jobs is fast gaining centre stage.

Equally tough would be to make sure that NDA’s political agenda doesn’t upend its economics. In a year when revenues have been squeezed due to the disruption caused by the rollout of GST on 1 July, the buzz is that the finance minister is likely to lean on receipts from divestment of government shares in public sector undertakings. Regardless, the finance minister will be judged for his ability to walk the talk on the commitment he held out in the last budget to stick to the path of fiscal consolidation. Which means resources have to be found to fund government investment—almost the only stimulus to investment, given that the organized private sector continues to practise abstinence.

In the final analysis, it is clear that the FM is up against a challenge. In a few days it will be judgement time.