By Saurabh Gandhi

Edited by Liz Maria Kuriakose, Associate Editor, The Indian Economist

Arun Jaitley’s budget had many firsts. The most noticed, however, was the unprecedented five minute break that he took while reading his budget speech. When the Speaker adjourned the House upon his request, all the TV anchors were busy fishing for conspiracy stories. Alas! There was none. It was just a minor health issue, making it difficult for him to stand. He delivered the rest of the budget while sitting. However, he was not the only one with difficulties in the Lok Sabha. A look of impatience was visible across the face of many MPs as Mr. Jaitley went on to present an unusually detailed (read: lengthy) Budget.

In fact, it is the details that went on to become headlines. While some details which were mentioned were deemed unnecessary, others that were imperative to understanding the Budget were just brushed upon, not elaborated. “Much unhappiness has come into the world because of bewilderment and things left unsaid.” – Fyodor Dostoyevsky. But Mr. Jaitley seems to have escaped too much criticism from any quarter.  Is it because the media and the country have finally given Mr. Modi’s government the ‘honeymoon’ period that he had complained about not getting in his blog after one month in office? Or is it that Mr. Jaitley has very nicely laid out the budget in the form of an Indian Thali so that everyone had something to be happy about? At a deeper look into the budget, then we realize that it is the latter. Mr. Jaitley used his maiden budget to cater to the mandate that Mr. Modi had received.

One aspect of the Budget which has been questioned is the fiscal deficit target. Fiscal deficit arises when the total expenditure of the government exceeds its total revenue. The government has to borrow to finance this difference. That leads to crowding out of private investment as the government becomes a huge demand source of all the loanable funds available in the market. Reducing the fiscal deficit is important as a higher fiscal deficit also leads to inflation. Moreover, the sword of a downgrade by the credit rating agencies of the world also hangs over India due to the fiscal deficit situation. Mr. Jaitley retained the target of 4.1% of GDP set by his predecessor. A look at the budget reveals that he relies heavily on disinvestment proceeds and higher tax revenues to meet this target. However, the economists, credit rating agencies and the markets were expecting something else from him.

Just days before the budget, Mr. Jaitley had defended the rail fare hike. He had also continued with the 50 paise hike in Diesel and raised non-subsidized LPG prices, heightening expectations of a huge cut in subsidies in the Budget. He did look after this expectation by announcing an Expenditure Management Commission which would look at rationalizing subsidies but stopped short of cutting them down. What needs to be understood is that Mr. Modi had not received the mandate for cutting down on subsidies. In fact, it is quite the opposite. Throughout the elections, Mr. Modi had harped upon the increasing fuel prices and the imposition of quota on cylinders by the UPA. He even criticized the Food Security Bill, not on the economic front, but because he wanted it to cover more people. So how could his finance minister go on to radically (or even minutely) cut down either the fuel or food subsidies? He could do the rail fare hike because of two reasons, the first being that he could say that this was one step in fulfilling people’s dreams of a bullet train and the second being that he could pin the blame on the UPA. Neither of this was possible with the subsidy situation. So, Mr. Jaitley cleverly took the middle path.

The other first in the budget was the announcement of so many schemes with allocation of 100 crores. Even this piece fits perfectly in the larger puzzle of Modi’s mandate. A large part of the mandate that he received was from India’s youth. Mr. Jaitley announced allocation of 100 crores for Start Up Village Entrepreneurship Programme, Virtual classrooms, Sports University in Manipur, Developing employment exchanges into `career centres’, and the Young Leaders programme. While the question, “is an amount of Rs 100 crores adequate enough for these well-sounding and ambitious programmes?” still hangs in the air, it was no doubt a political stroke played by Mr. Jaitley. This coupled with the announcement of new IITs and IIMs had many satisfied while few questioned the increased focus on these centers of excellence when a miniscule proportion of India’s student population got into them. Most other Rs 100 crore allocations, such as for beautification of river fronts in UP ghats, were earmarked to signal Modi’s intent of fulfilling all his promises that he had made in various speeches during his campaigns. While it is good and actually refreshing to see that a politician actually remembers his promises after winning the elections, it is equally important to question that in trying to do too much; will he not lose focus and end up just starting everything and finishing very little?

The Indian National Congress (INC) was in a quandary, trying to make up its mind on the budget. On the one hand, some INC leaders dubbed it as lacking vision. On the other hand, Chidambaram and many others (including Sonia Gandhi herself) called it a repackaging of old UPA schemes. It is important to note here that Mr. Jaitley has not tinkered with any pet project of the UPA or the previous NDA government. He has continued the allocations for Sarva Shiksha Abhiyan, PMGSY (both mooted by the NDA, continued by the UPA), MNREGA, and the Food Security Act. While continuity in most such schemes is desirable, the question regarding embezzlement of funds in these schemes was not looked into in the Budget.

The Budget had a lot to offer in terms of infrastructure and financial system reforms. Introduction of REITs and announcements with regard to ADRs and GDRs to deepen the Indian bond market are important ones. To give a boost to savings and investment, Mr. Jaitley put more money in the hands of the citizens by bringing in changes in the Income Tax Act. The announcement of GST was equally welcome but many budgets till now have promised GST and none has actually proven true so there is a bit of skepticism regarding that. In terms of infrastructure, the allocation for developing highways was huge but the amount set aside for smart cities somehow didn’t make sense. A large part of these announcements catered to the aspirational India that had voted him to power.

All in all, Mr. Jaitley managed not to spook anyone with his budget. Neither did he manage to pleasantly surprise anyone, which is the sad part. With such a huge mandate, come huge expectations. For now, both Mr. Jaitley and Mr. Modi have people hooked onto listening to them, waiting for that one big bang announcement that will usher in the ‘ache din’.

 A commerce graduate from St. Xavier’s College, Kolkata, Gandhi is a politics enthusiast. He has been an intern at Youth-Ki-Awaaz and has a keen interest in current affairs. Innovation in India’s education system and gender equality are issues which are very close to his heart. When not following news, he is either reading or crossing movies off his “To see list”. A self confessed social media addict, Gandhi can be reached on Twitter @saurabhgandhi92. Call him mad and he will love you for the rest of your life.

Posted by The Indian Economist | For the Curious Mind