Last week, Indian Finance Minister Nirmala Sitharaman presented her fourth Union Budget and the Bharatiya Janata Party (BJP)-led National Democratic Alliance (NDA) its 10th consecutive one. Like it or not, the Indian budget invariably serves not only as a precursor, but also bears a strong relevance to our budget in Pakistan, which gets announced around four months later.
Contrary to wide expectations, the finance minister surprised everyone (perhaps for the first time in Indian political history) by presenting a budget in a very detached, objective and a professional manner, and by predominantly sticking to the much-needed economic initiatives (even if they came at a cost to her own government’s political fortunes) rather than indulging in mere political gimmickry, point scoring or sheer rhetoric.
Whereas, almost everyone was expecting the budget to contain huge freebies for poll-bound states (with some expected to enter elections as early as next month), she shocked her critics by the announced cuts in on-going historic freebies like in MGNREGA, food subsidy, fertiliser subsidy and direct poverty-alleviation spends; instead opting to emphasize on job-creation—teaching people to fish and not simply giving it to them!
Additionally, some innovative announcements came as a breath of fresh air: A digitally read budget also aimed at digitally integrating the country, from villages to farming to post offices to finance to infrastructure to land registrations, to tax collections to railways, to roadways, to waterways to logistics to currency—into the largest single national computer; the introduction of an official digital currency that will be introduced by the RBI and will be the first of its kind in South Asia; and last but not least, a typically annual budgetary exercise so efficiently transformed into in-effect a show of centenary budget targets for India, meaning a long-term vision instead of being limited to merely a narrow 2022-23 perspective—Ms Nirmala being in her true element where her training in economics with a psychology backdrop was clearly at display in creating a national economic narrative aimed at making India compete with the best in the world rather than being content with just making its two ends meet!
So, what were the challenges in front of her when preparing the coming year’s outlays and perhaps the trends for the next 25 years? While India’s overall macroeconomic numbers and outlook appear reasonably satisfactory—especially when compared to the rest of the world where they may even be termed as outstanding owing to some impressive projected growth figures—there remain some serious underlying concerns vis-à-vis growing inflationary pressures stemming from supply chain disruptions though, a slack in national economic activity due to demand compression and a looming debt crisis owing to significant pandemic related borrowings amidst frequent shutdowns.
Also, the sheer pandemic burden has in-turn had an adverse effect on the India economy resulting in job losses, erosion of incomes and a surge in sheer poverty percentages—although there are no precise numbers available on the rise in poverty levels in India during the pandemic, the estimates put the increased number of people slipping into poverty due to pandemic at over a 100 million—huge by any proportion.
The government therefore, over the last two years, had naturally been borrowing and spending heavily: Providing free food grains to 800 million people, with the food subsidy bill growing to almost INR 45 billion in 2020-21. In addition, income support to farmers amounted to almost INR15 billion and the safety-net spends (the National Rural Employment Guarantee Scheme) that were undertaken during the same period amounted to another 25 billion Indian Rupees. All this had to be reigned-in despite the looming state elections.
In fact, the pandemic exposed India like never before. Its legacy deficits and challenges got even more amplified—in health, in education, and in infrastructure—till the pandemic came along the underlying risks of running with a terribly ill-equipped health infrastructure were conveniently ignored.
The consequences were there for everyone to see. According to Sambhav Foundation’s study, India stands short of 6.4 million healthcare professionals to match global standards. Naturally this shortfall could not have been ignored in the budgetary exercise, as by now the short-term and long-term threats of a health deficit on livelihoods had become quite lucid, especially since most Indians, even before the pandemic struck, were termed by the WHO as being just one disease away from poverty.
The additional challenge in making the budget sensitive to this was that health is a state subject—nudging the states to rise to the challenge can always be tricky, especially since the central governments need to be careful on not coming across as the ‘big brother’. All these factors had to be contended with by Nirmala Sitharaman when making the budget.
In order to conclude, let’s try and gauge what some of the main solutions offered in this Indian budget for meeting the above-mentioned challenges really are. Well, mainly the mantra is that of more reforms. While signalling its commitment to a market-based economy and simultaneously ramping up its social welfare spending to play catch-up to bridge the legacy deficits, the most significant outlays by the finance minister aim at unleashing fresh measures on making it easier for start-ups to flourish in particular and to further improve ease-of-doing business the country in general.
In fact, the budget solicits the clutch of venture capitalists and private equity investors of this world and the movers and shakers of global capital to bring their fresh ideas to India where for them the ease-of-doing business will be ensured by no less than the finance minister herself; the idea being to inspire the entrepreneurial spirits with an eye on sustainable growth.
If for nothing else but purely for its decisive break from the past, this budget can be ranked as a disruptive budget that pitchforks Sitharaman into the elite league of some very fine past finance ministers of India, such as Manmohan Singh. No wonder, a number of analysts are referring to this budget as perhaps the ‘1991 moment’; when also under Manmohan Singh and Narasimha Rao, the budget had ignored political rebuke and undertaken a bold and radical paradigm shift, making way for India to finally break it shackles and enter the modern business world. Our economic managers would surely do well to take a leaf or two from these February 4 announcements in India.