Sunday 24 January 2016

Union budget crucial for Modi (Pakistan Observer)

Within a month, Finance Minister Arun Jaitley will present the 2015-16 Union Budget, his third since taking over the post on May 26,2014. The first two budgets have been widely seen as following the same track as its predecessors, and certainly did little to unleash the “animal spirits” of corporate India, which continues to hoard cash reserves rather than make fresh investments in the country. Prime Minister Narendra Modi made his name in politics due to the efficient way in which he ensured the development of the state. People from across the country saw for themselves the relative absence of corruption and a prompt delivery of government services. Electricity flowed 24/7 rather than in fits and starts as in neighbouring Maharashtra, a richer state in taxation terms thanks to Mumbai being within its boundaries .

Schemes were introduced to ensure that even the poor got access to private health facilities, while roads were well-maintained. Of course, the Information Technology industry did not flock to the state in the profusion with which it did Bangalore in Karnataka, to an extent because of Chief Minister Modi remaining true to Mahatma Mohandas Karamchand Gandhi’s doctrine of prohibition of liquor. Night clubs were absent. Those living in the state were expected to go to bed early and abstain from alchohol, while a vegetarian diet was de riguer in government offices, again in deference to the culinary tastes of the abstemious Mahatma, who though born in a business caste, had a visible disregard for personal wealth to the extent that it caused some discomfort to family members.

Mahatma Gandhi’s approach to his family was in contrast to that of his friend Motilal Nehru, who lavished resources and attention on his son Jawaharlal and constantly lobbied the Mahatma until the younger Nehru was imposed on the Congress Party as its chief despite Vallabhai Patel having much greater support among the cadre. In contrast, Mahatma Gandhi refused to accept money from friends so as to give a good education to his children. one of whom ended up on the streets of cities across northern India begging for alms, ignored by his father. 2016 is going to be a crucial year for Modi, for unless he revives the economy and ensures a flood of new jobs, the political fortunes of the BJP are likely to remain bleak.

The party was almost annihilated in the Delhi assembly elections and reduced to a rump in the Bihar assembly months later, despite strenous efforts being made to ensure that politicians from Bihar played an outsize role in the Union Cabinet and even in the central government. Again following the teachings of Mahatma Gandhi, for the first time since 1965,a conscious effort was made by the central government to downgrade the use of English in governance and replace it with Hindi, and to slow down the growth of English-language schools and colleges, the way Pakistan in the 1970s gave primacy to Urdu over English, which has ensured that the international link language is not spoken in the country in the manner in which it would have had it been encouraged. Pakistan followed the example of Sri Lanka, where in the 1950s,the use of English (and Tamil) was discouraged and Sinhala promoted. However, energetically favouring Hindi across the board does not seem to have helped the BJP in Bihar.

The central government has been gifted a cushion approaching $ 70 billion because of the crash of oil prices. Unlike in the US, where the price of oil at the pump is not even double that of a barrel of crude oil, in India the retail price for petrol is close to ten times the price of crude, almost all the increase being accounted for by taxation. Crude oil prices have crashed but petrol prices at the pump have been lowered only slightly, even though a much bigger reduction would have had an immediate effect on bringing down inflation. Because Reserve Bank of India Governor Raghuram Rajan is fixated on US textbooks, he regards high interest rates as being price deflators, when common sense would show that such a measure adds to costs and therefore to prices. 

Similarly, the Union Finance Ministry continually raises taxes in various forms, including a recent cess to “make India clean”, something that does not seem to be taking place at any great speed. Of course, it must be said that the ministry is refreshingly straighforward. In its “Mid-year Economic Analysis 2015-16”, it admits that there is “uncertainty” about the accuracy of GDP date, and that there are often “mixed signals” (page 6). On pages 6,7,8 and 9,the analysis goes into considerable detail about why it regards important measures of economic health to be flawed. It is hard to believe that any other country has a Finance Minister as brutally frank about its statistics and its conclusions as India, as most put a gloss over the truth rather than reveal it openly to investors across the world. 

For those of average intellect, such as this columnist, it is difficult to understand parts of the analysis. For example, on page 5 it speaks of “steady recovery” but in the very next page, admits that this economic year is “difficult to understand”. While the analysis claims that “gold imports have stabilised”, it neglects to mention that this took place because gold prices during that period were unusually volatile and that in recent weeks, gold imports have once again risen sharply. Hopefully,those who prepared the analysis with such honesty will ensure that India gets the low tax and gentle compliance regime needed to entice tens of millions into the direct tax net. 

The system of high rates of taxation (especially for those in the services sector, who are being taxed twice over, and who consequently have seen the sector slow down considerably) has not worked, and it was a disappointment to many that first two budgets of the Modi government were so similar to its predecessors. Across the country, taxpayers present and future are hoping that Prime Minister Modi will not outsource the crafting of the 2015-16 Union Budget to anybody else, but will take control of the process so that innovative measures and substantial relief for the middle class will be provided. Sensible economic policies take nearly three years to strongly reveal their benefits, so this budget is crucial for Prime Minister Modi, who needs to show strong growth in 2019 in order to win a second term of office. 

—The writer is Vice-Chair, Manipal Advanced Research Group, UNESCO Peace Chair & Professor of Geopolitics, Manipal University, Haryana State, India. 

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