For the purpose of this editorial, my readers and I stand on the opposite sides of a great divide. I’m writing this well before the Union Budget 2012 but you are probably reading it after it has been presented. So in this sense, my readers have a great information advantage over me. But somehow, I feel that this does not actually amount to much. I might actually know as much about the Budget as you do.
My reasoning for this is simple. All things considered, the government has almost no choice in what it has to do. In this sense, all the excitement and apprehension that the media is talking up in the run up to the Budget is a little forced. There are actually not many unknowns about this Budget. Let’s just take a moment and see logically what could happen.
First, consider the components of what would be an ideal Budget that would actually put the India story back on track. The core components of such a Budget would be a lower fiscal deficit and heightened infrastructure spending. By any measure these two would tackle the biggest roadblocks to the future. It follows that if you want to have a lower deficit and spend more on infrastructure, then you have to cut expenditure somewhere. The place to do that would be some of the subsidies as well as the general wastefulness of the government.
There’s so much talk of subsidies that we’ve lost sight of the fact the general non-plan expenditure of the government should have been the first target. The first goal of a genuine dream Budget would be to announce a targeted reduction in this expenditure, facilitated by the abolition of a few departments. Given the now permanently high oil prices, as well as the waste engendered by artificially low prices, fuel subsidies should probably be the second target. In rupee terms, lowering the amount of money that the government sucks up would ease the availability and cost of money in the economy for actual productive use, in infrastructure, in the private sector, indeed for anything else. These measures to free up money for actual development are just the beginning, but they would have to be at the heart of any Budget that can be considered growth-oriented and forward-looking.
What is the likelihood of this happening? I’m afraid the answer is zero.
Politically, and I suspect ideologically too, this government is on a very different path. There is no chance that the government will be able to either spend less, let alone spend more on the right things while spending less overall. Unfortunately, that leaves only two routes open. One, a wider deficit; and two, higher taxes. Actually, there’s a third too—higher taxes AND a wider deficit. In simple terms, the government is going to suck money out of the economy at a greater rate. However, since the Budget is more a political exercise rather than an economic one, one can expect some big-ticket announcements that will help the government claim that it’s on the move while not amounting to much.
On a general principle, optimism is the first requirement for any actual positive outcome. Therefore, as I come to the end of this editorial I would like to end it on a positive note. Unfortunately, after much thought, I’m unable to think of one, at least in the context of India’s political economy and the Budget. When I discover one, I’ll let you know. Meanwhile, best of luck; we all need it.
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