Indian budget takeaway

Rajan knows that all accelerated growth always leads to dangerous economic imbalances.

Revealing a despair that I shared, Elaine Meinel Supkis wrote in 2007 that,

‘There are very, very few fiscal conservatives around. We like reduced debts, sober analysis of economic facts and building for the future coupled with real capitalism, not predatory, debt-fueled speculation.’

Debt-fuelled speculation, aided by the venality of bad-faith politicians and academic central bankers, has ruined the economies of the West. We live in hope that India will resist mammon-obsessed financial quants, and follow a line of genuine value creation, unleashing prosperity across society and nurturing aggregate demand not asset-price bubbles, generating healthy rather than piratical profits. As Hyman Minsky eloquently put it , ‘The primary aim is a humane economy as a first step toward a humane society.’

And so to Union Finance Minister Arun Jaitley’s third and perhaps final budget. If you want granularity, I have found that some of the most detailed and balanced analysis is in the Indian Express (here and here for example). For an excellent quick overview, see Minhaz Merchant’s somewhat unhappy column here.

I too was disappointed with this budget, but then one is almost always disappointed with budgets, because what is secretly desired above prudence is excitement, such as in Margaret Thatcher’s first budget in 1979. That one, whether or not you liked it, was a genuine watershed for the UK, a dividing line drawn to separate a brave new world from the economically shabby old one.

A month ago, Reserve Bank of India (RBI) Governor Raghuram Rajan boringly promised that ‘Structural reforms in the forthcoming Union budget that boost growth while controlling spending will create more space for monetary policy to support growth.’

And so it came to pass: a pedestrian, boring, sensible budget that reassured most people and annoyed others, with nothing too dramatic anywhere. A curate’s egg of a budget, good in parts.

We should approve this sobriety. India should look with horror upon the indebtedness of China and the USA, and especially of Britain, and take careful bearings of its current position and direction. Rajan is somebody who has a clear vantage point in this and his prescription, ‘The enormous costs of becoming an unstable country far outweigh any small growth benefit that can be obtained with aggressive policies,’ was a slap-down to the speculators and those impatient with the fact that an interest rate actually still exists for important borrowers.

Rajan knows that all accelerated growth always leads to dangerous economic imbalances.

The problem is, of course, political. ‘Boring’ is not what Modi promised when he was elected. When chief minister of Gujarat, his watchword – the one that really stuck in my mind and provoked realistic optimism – was ‘less government, more governance’. That wasn’t a reckless libertarian battle-cry; after all, as they say, ‘In India, everything waits for the government.’ But what it promised was less bureaucracy, liberalisation of supply-side considerations, government getting out of people’s way and letting them use their thus-far shackled talents to grow themselves prosperous.

The government might help in this process rather than run away, and that’s what Modi meant by ‘governance’ – and he is doing just that, holding people’s jackets while they get down to business. The programme to give ordinary people banks accounts, liberating them from the clutches of ‘chit-wallahs’, who would ‘look after’ the unsecured cash of the poor for outrageous fees, has been a great success with 300 million new accounts opened. The national ID scheme, the ‘aadhaar’ (think ‘address’) looks as if it is going to turn into a proper social security ID scheme, implying health and other benefits in the future will be well-administered and efficient.

Inflation is down and the prices of food staples stabilised. Infrastructure is booming, FDI is up 40%, but not by too much (investment is debt owed abroad and can come back to haunt you). The deficit is down a little and now within managed bands. Among emerging countries India is, indeed, a beacon of stability. Such a reputation needs bedding in and nurturing, and its custodians should not act like drunken sailors.

There is a thousand other small good things that in the future will be big, important things. Yet Jaitley manages to make all seem dull and retrograde (following Monday’s budget he still hasn’t reformed the retrospective tax terrorism), as if the BJP is morphing into the Congress party without the corruption. Of course, he has a thankless task.

The feeling and fear abroad in the chowk is that the bold moves expected by Modi – and I mean Modi because one cannot expect very much from the limited talent in the BJP – seem to the Indian public to be a long time coming. And tick-tock, the next general election approaches, galloping like a doom-horse at full speed.

In truth Modi is playing the long game, restructuring behind the scenes and thinking atypically (uniquely?) for a politician about the future in terms of decades not election cycles.

Before he was elected Modi’s enemies in politics and the media (especially and shamefully the lazy Western media) were predicting fascism and rivers of Muslim blood for India. They are still trying to ply this lamentable fiction; but outside English-speaking cocktail-party Delhi and Broadcasting House in London, nobody in the world is listening, least of all ordinary Indians.

My own anxiety is that far from being bloodthirsty and ruthless, the opposite is the real danger and Modi will prove not ruthless enough to satisfy in 2019 the people who lent him their votes in 2014. They didn’t want blood (in fact a surprising number of Muslims, freed from the ghetto mentality instilled in them by Pakistan-sponsored clerics, also voted for the BJP) but they did want dramatic not incremental change.

So there seems a cautious creeping along and a lack of decisiveness in changing the direction of many of India’s institutions badly in need of somebody grabbing the steering wheel off them. I hope this is Jaitley at fault and that soon somebody who can knock together the heads of recalcitrant Congress-loyal civil servants will be installed. There have in fact already been occasions when the Prime Minister’s Office has had to intervene with a boot to the seat of the pants to get things moving in the finance ministry.

This budget saw a nearly 10% increase in funding for defense, which sounds excellent until you realise that all but around 1.5% of it is going towards the upgraded and laudable One-Rank-One-Pension (OROP) scheme. In reality the procurement process for arms and everything else is pretty dire. To be fair, India isn’t about to fight China, and currently its main job is swatting the Pakistani mosquitoes that buzz across the border. But the military must be allowed to plan for next the next decade or three, not just next year.

Likewise the squeeze on the new and vulnerable middle-class (that milk-cow for spendthrift governments – see especially the UK) and the continued strange reluctance to come down like a ton of bricks on the crooks who stole India’s wealth over the past 50 years – and it is very well-known who they are. Modi will be personally punished by the voters if he doesn’t soon act there.

Is high-society Delhi getting to him? Is he just too nice a guy? I generally do not like politicians at all, but I liked Modi a lot. Modi has been very quietly tough and steadfast in the past. India needs him to be tough – and above all to speak up for himself – now.

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