Budget – second helping

Aiming to get consumption up and savings down is a step in the right direction

Perhaps more of a footnote, or a doggy-bag.

Spending is up on infrastructure, farms and rural sector. Irrigation – Modi’s big innovation in Gujarat and the thing that, tied to electrification, transformed the state’s economic fortunes, is now a major element of the national Big Plan. Good.

The income of farmers is supposed to double over the next five years, providing a feel-good factor into the next general election, but more importantly giving more of the economic pie to households – increasing consumption at the expense of savings. This is also good and needs to happen because India has too many poor people, and at the same time absolutely massive potential internal markets. If spending goes up then India can become rich; that’s not going to happen if the mass of people has no money to spend.

But at the same time attacking the salaried, or middle class – which is growing but still fresh and vulnerable as a social bedrock in India – is reckless and short-sighted. These aspirational people are the tent-pole of the BJP’s future. The poor peasants and farmers are potential supporters but a lot of them are still entranced by the magical promise of Her Serene Majesty the Empress of India, Sonia Gandhi, and her son Prince ‘Charming’ Rahul.

The illiterate and trusting mentality that led the poor blindly to support Rahul’s granny is waning but has not disappeared – look at the degradation of the Gandhi dynasty’s pocket boroughs, such as Amethi, with the worst childhood malnutrition, the shabbiest roads in the country; then look at the majorities they still win there at elections.

The middle class (not the intellectuals!) is far more solidly convinced of Modi’s program, so to alienate the salary men and women is political suicide. Even if the luxury taxes and the nerf to pensions is not very serious, the mere perception that the government is going after the middle class – instead of, for example, fulfilling the election promise to collar all the millionaire crooks who burgled the country for decades – is enough to frighten away large portions of BJP support.

Voters were brave enough in 2014 to turn their back on socialist paternalism promised by Congress, but that could flip back again if they think they were duped and big business is the only beneficiary.

I spot a lot of government schemes for this and that (and no repeal of the wasteful MNREGA work scheme), which depresses me a little. Bureaucrats love schemes because it makes them important, but they spill money everywhere on the ground on the journey to where the funds (i.e. taxpayers’ hard-earned wages) are supposed to go. Government should help but keep its nose out; yet the drag of the system everywhere and always is for the government to do more and more, to less and less effect.

One of my heroes is Sir John Cowperthwaite, who was the financial comptroller of Hong Kong in the 1960s. He knew the best way to raise living standards and achieve growth was to muzzle the government. He wouldn’t even allow statistics to be collected because he thought that bureaucrats would use them to create mischief. Hong Kong saw the greatest rise in wealth the world has ever seen in the decade Sir John was overseeing things. Only ‘Harry’ in Singapore came close.

The infrastructure measures of this budget are welcome. On the one hand one wishes things to be bolder and faster, but on the other Jaitley should not chase miracle growth through debt, especially foreign and dollar-denominated debt, which will inevitably result in a hangover. Sure but steady, and healthy but not stupidly high growth, is nirvana.

The fiscal measures are the least impressive; the temptation to carry zombie banks should be resisted. They should be allowed to die and smaller, new banks encouraged to grow. With over 5% inflation (which other countries flirting with deflation would kill for) debts can steadily be eroded.

If you want to see in detail the nine budget shaktis, Arnab Mitra has a good piece here.

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