Will the Union Budget address growing poverty, pain and inequality?
Will this year’s Union Budget be smart, different and innovative or will it follow the familiar patterns set by populism and politics?
All eyes are on the upcoming Union Budget to see whether this too will be guided more by politics and populism or address the prevailing pain and boost growth. To deal with poverty and pain is after all the main function of economic policy. Their other task is to try and make people’s life more comfortable by using technology and services.
We are on the brink. The economy was already in bad-shape before the pandemic. The frequent reshuffling of RBI Governors, Chief Economic Advisors and crucial functionaries in the Finance Ministry were also not very helpful. While a team of 150 economists helped the former UPA Government headed by Dr Manmohan Singh to frame policies, the Modi Government has by and large sidelined most of them.
While the present Government took the economy for granted and failed to anticipate the disasters it could face, the pandemic came to its rescue. It allowed the Government to take the upper hand, blame the act of God and to try and ride out the storm.
The founder of HDFC bank, Deepak Parekh, was appointed chairman of a committee set up by Dr Manmohan Singh. This was an honorary post that carried the rank of a Minister of State. The committee was mandated to assess financing requirements in 10 key physical infrastructure sectors -- electricity, roads and bridges, telecom, railways, irrigation, water supply and sanitation, ports, airports, storage and oil and gas pipelines. The Committee would suggest measures on issues for financing like sourcing of overseas funds, availability of debt and equity and formulation of comprehensive data. But the Modi’s government dropped Parekh and reconstituted the advisory panel.
Demonetisation, while destroying the informal economy, did have some positive spin offs at the macro level. Several industrialists who engaged in money laundering during the UPA regime were forced to slow down or change course. But almost the entire chunk of money came back into the banking system while farmers and the common man suffered because politics was given priority over execution, especially in the cooperative sector. Small investors and famers were the worst sufferers due to demonetization.
The pandemic and the lockdown dented cash flow and expanses went up, often beyond the control of various corporations and state governments. The data is still to be compiled and studied on the costs of the pandemic.
Data shared by government agencies are confusing. For instance, skilled and semi-skilled jobs have risen to 38 % in the EPFO records whereas CMIE data speak of 53 million people losing their jobs. Data are used by all governments to their advantage but the scale of obfuscating data this time is huge. Data by definition are neutral but when it is politicised, the gap between perception and reality often disappear. The truth takes time to surface and the damage done is irrepairable.
Agriculture is not attracting capital expenditure at all. Agriculture needs to be modernized to be able to attract investment. The Government tried telling farmers through the farm laws to sell their assets, which they are obviously reluctant to do. The other solution is cooperatives which already exist in states like Maharashtra.
Private sector domination resulting in the killing of APMC has shown how little the Modi government knows about agriculture. Because the APMC is huge – it has its colleges, hospitals, movie halls and hotels funded by the APMC itself. Therefore, dismantling them was out of the question without having a proper substitute. It should rectify the corruption from APMC instead of abolishing it. The BJP doesn’t understand this, and has no idea where APMC stands for farmers.
The APMC is an idea coined by Lord Curzon, the British Governor General of India and the methodology was worked out by Gopal Krishna Gokhale, who worked closely with Lord Curzon. Gokhale made his presentation at a round table conference in London.
An opportunity can be small businesses coming to India from China, which has taken strong steps to curb pollution. Paper has become very expensive because China has stopped recycling paper and so on. These job works can come to India. Now Pollution created in China will also create pollution in India. Industrial pollution is a global issue but the start-ups are attracting money and talent. It is retaining talent and the high-tech industry are getting attracted very much.
Start-ups may not be a great employment booster but the economy would gain. The new talent from even rural parts of the country is part of these Start-ups as money is available through CapEx. The start-ups are small, innocent people are in it and it is the future of the country.
Monetary easing, fiscal stimulus and structural reforms, a model set and followed by the former Prime Minister of Japan Shinzo Abe is what the Modi Government is trying to follow. It may well give short term benefits.
It will be interesting to see whether the finance minister Nirmala Sitharaman follows the same methodology or if there is something to give life to the economy, which is already on ventilator.
(As told to Santoshee Gulabkali Mishra. Jayraj Jayant Salgaonkar is Managing Director at Kalniranay, Mumbai, author and economist)
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