Budget VI: Does Modi Know Economics At All?

From the things Nirmala Sitharaman chose to make dearer and cheaper, and the continuity of incremental approach of Arun Jaitley to reforms, it is clear Narendra Modi has been the de facto finance minister all throughout. And his understanding of economics is questionable, notwithstanding his big dreams.


After five years has come a that has shown that incrementalism was never then Finance Minister Arun Jaitley’s idea of reforms, thanks to Nirmala Sitharaman who presented a document of the same nature. Subramanian Swamy, who commanded a huge following on social media by seeing Jaitley hatching a conspiracy to project Prime Minister Narendra Modi in poor light, will be disappointed as his bugbear recuperates, with little chance of making it back to the Union Council of Ministers due to his failing health. It is clear now the prime minister was himself the de facto finance minister all these years; the formal education and reformist inclination of his choice of MP for the economic portfolio do not matter; an FM under Modi is as much a rubber stamp as Manmohan Singh was PV Narasimha Rao’s in the period 1991-96 and Sonia Gandhi’s between 2004 and 2014. This is worse for India than it was for Gujarat because, unfortunately, very little of the rest of India is culturally as market oriented.

Barring instances of good intent like pushing innovation through educational institutions and one real reform in addressing legacy disputes, the Union proposals presented in Parliament on 5 July has no roadmap to achieve a fast growth rate that would generate jobs in large numbers, one of the most serious of concerns these days. Even for research, there is no weighted deduction for R&D, which means the private sector has no incentive for innovations. Harping on start-ups and wielding MUDRA does not help because (a) few entrepreneurial ventures succeed, (b) even when they succeed, they generate employment on a small scale and (c) the official figures of beneficiaries of public sector bank loans for new businesses are questionable. In the era of non-performing assets that have scared the daylights out of bank managers, they have been told that further defaults would affect their service records. To emerge from the predicament, media reported during the previous Modi government, existing loans were turned into MUDRA to swell up the numbers. Why the lakhs of jobs promised by the biggest names in during the launch of Make in India in September 2014 could not materialise is a question Sitharaman left unexplored. The reason for big investments in India was as absent yesterday as it is today after the presentation.

While higher tax collections from a wider net of taxpayers is good for the state, Modi’s obsession with tax to satisfy his populist agenda has now surpassed the requirements of the poor man’s bare necessities for a dignified living. It is no longer about one essential bank account or one LPG connection per household. This aims to pamper the better off as well with doles such as pension for traders. And that is bribing us with our own money! It is time people understood government has not a penny of its own; it’s all people’s money. Ironically, the finance minister’s rhetoric did not match her policy pronouncements. She quoted from a Tamil Sangam-era literature Purananooru, for example, that the elephant could be fed with some rice but not allowed to trample on the paddy field. But the enhanced rather than decreased government presence in more spheres of life.

Sitharaman said she wished to make life easier for the people. Other than procuring defence equipment cheap, how making camera modules, mobile phone chargers and set-top boxes cost less serves the purpose is best known to her. Electric vehicle components, the prices of which have gone down too, is a bad idea as science is far from finding out a way to generate as much energy from cells as it does from fossil fuels. At the same time, the appreciation in petrol and diesel prices will have a cascading impact on all sectors of the economy. No advocate of welfare economics will, of course, complain because of the higher costs of gold and silver, fully-imported cars, split air-conditioners, loudspeakers, digital video recorders, CCTV cameras, cashew kernels, imported plastics, raw materials for manufacture of soap, vinyl flooring and tiles, ceramic and wall tiles, imported stainless steel products and mountings for furniture. When the news consumers are moving to the web, increasing taxes on newsprint and paper for newspapers and magazines may not impact the end user, but it will make small media start-ups, which report local issues not on the web but in print, struggle more. The higher cost of optical fibre will affect communication, medical industry, defence, broadcasting, the small-scale of lighting and decorations, and mechanical inspections. Why books, of all imported goods, should be dearer beats plausibility, too. And then, importing auto parts for a higher price will impact the industry that is among the few that generate employment on a large scale. The automobile industry is disappointed also because they were expecting a stimulus to come out of the current slowdown, which they did not get. Besides, no scrappage policy was announced. Making hookah and chewing tobacco more costly gets slow claps. Whereas cigarettes turning expensive always pushes the lower-end of consumers to a more harmful bidi, Sitharaman has only done what all her predecessors did, none of whom could dare challenge the hazardous backed by a powerful lobby (quite a few bidi barons in the country are legislators), let alone ever contemplating a total on all kinds of tobacco produce.

The electoral invincibility of Modi for his reach-out programmes, helped in good measure by a pathetic opposition, has been discussed nationally. Borrowing his own words, if he intended to govern for four years and take recourse to politicking in the fifth, this has wasted the first of the four years of his second term. The nearer he is to the next election, the more populist he will get. Mercifully by 2024, the nation will be past some of his self-imposed deadlines. With the attitude of the government that the Budget betrayed today, alleviation of poverty is an impossible dream within the timeframe Modi has holed himself in. Forget a $ 5 trillion economy, this government cannot even double farmers’ income before the next Lok Sabha election. Without, of course, inflating the tillers’ wealth artificially by robbing Peter and paying Paul, which is the only formula known to socialists. An uncharismatic Rahul Gandhi had tried it with NYAY — only to see the Congress fall flat on its face. UPA II had realised in 2009 itself that a coalition’s second term gets no honeymoon period. Modi 2.0 will experience it soon. But then, it has not one vote to lose if the opposition continues to be devoid of good economic alternatives. India can now only pray that a leader emerges in the next five years who does not only dream big but also has a roadmap to reach there.

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