By Barun Mitra
Political challenges
But there is little indication that the politicos, cutting across party lines, really appreciate the economic cost of populist expenditures. Many continue to believe that government expenditure and give aways hold the key to electoral success. As the election approaches, the pressure will only grow on the government to loosen the purse string, which would make it quite difficult to meet the fiscal deficit target of 4.8% of GDP. A typical indication of the impending election is in the 50% increase in the allocation for the department of Advertising and Visual Publicity at Rs 239 crore (USD 41 million).
Some believe that the flagship welfare programmes such as the rural employment guarantee scheme and the farm loan waiver, contributed to the reelection of the Congress led coalition in the 2009. Contrary to popular wisdom, the Congress had swept the urban seats in that election, and had done quite badly in some of the poorest and largely rural states. The electorate may be poor, but mere sops are not sufficient to win their loyalty. This has been repeatedly demonstrated in the past five years, in different state elections. Despite spending over Rs 700,000 lakh crore (USD 140 billion) on social sectors, India continues to rank very low on human development index, and this has not helped the ruling political class to win the confidence of the electorate with such largess. The electorate seems to prefer performance over promises.
Beyond the budget
However, the budget not only presents an account of the government, it also signals the underlying intentions of the government. The mixed signal that emanating from the budget, does not inspire much confidence that the post budget policy issues and administrative bottlenecks would be dealt with by the government in the next few months in the run up to the election. Cumulatively, over Rs 500,000 crore (USD 100 billion) worth of investment are estimated to be held up because of such hurdles. No wonder that Indian companies are investing more abroad than at home. On the other hand the budget proposed yet another incentives (for large investment of over Rs 100 crore (USD 2 million), aimed at boosting the investment climate.
Most people agree, that India’s economic trajectory depends not just on the union budget, but policies and their implementation, beyond the budget. Unfortunately, the budget does not give much indication that the government is either intellectually willing or politically able to pursue such post budget steps. The finance minister can only urge his colleagues in the government to implement the budget proposals at the earliest, rather than from September which have become the norm. Consequently, many ministries are unable to spend the funds allocated to them within the year, and then in the rush to spend as the financial year ends, the quality of expenditure becomes a casualty.
Looking ahead
If the budgetary projections fail, then facing electoral doom the government would have two sharp options. One, it may decide to ignore the fiscal targets, and pump in money to try to achieve a temporary boost. But there may not be sufficient time for this to play out before the elections.
A crisis can also be an opportunity. Confronting the economic crisis and dwindling political credibility the Congress led coalition could try to discover a new political strategy, which would may reenergise the grand old party.
The Congress could push for the long-pending administrative and regulatory reforms, the impact of which may be felt in a relatively short time. But such a strategy would need greater political conviction, and require surrendering use of arbitrary power.
The 1991 reforms were seen as an economic necessity, but politically expensive. Following the budget 2013, if the government is able to deliver on the projections, then the political discourse on economics may change dramatically, perhaps making economic economic reforms politically profitable.
But with its one step forward on the political front, and one step backward on the economic front, in the budget, the government may have lost the last big opportunity to reinvigorate itself before the upcoming general election. This may mean that as the elections near, the Congress party may fall back on its traditional political strategy of vote identity politics pandering to their fears, and promising everything to everyone.
If the Congress party wants to look at the past, in order to face the upcoming general election, it would do well to remember another lesson from political history of India. No party or alliance has won the national election more than twice in a row, since the days of Pandit Nehru in the 1950s.
The verdict of the people in the coming general election in 2014, will show whether the government has been successful in convincing the voters of its political promises, or whether the voters will hold the government accountable to its economic performance.
The author is the Director of The Liberty Institute, an independent think-tank.