A politically-cautious growth-oriented budget

A harbinger of state-led capitalism with Indian

characteristics

Kumar David-July 19, 2014, 4:32 pm
Try as they might to hide it, Finance Minister
Arun Jaitleys first Modi-BJP udget is a disa!!ointment for local usinesses !anting for
!rivatisation, and gloal neo-lieral thin"-tan"s salivating for #reform#, #restructuring# and
reirth of the $ashington %onsensus uried a decade ago y a gloal !o!ulist ac"lash&
'o(ever, the udget comes as no sur!rise to this corres!ondent (ho foresa( this Modi-BJP
economic !olicy turn in the )unday *sland of + June ,-./0 #'o( much can Modi change
!olicy1# This is (hat * said and the udget has orne it out&
#23!ectations of a gro(th and institutional reform oriented strategy are universal, ut no one
has contested my suggestion that austerity for the masses, and4or concessions to $all-Mart etc
(hich hurt small sho!"ee!ers, (ill engender a ac"lash& $hile * agree that there (ill e !ro-
usiness changes, * o!ine that a ma5or transformation of the *ndian economy is not at hand & & &
Modi-BJP (ill retain the mi3ed-economy& There (ill e some change ut a .6--degree !olicy
reversal is im!ossile& Margaret Thatcher style counter-revolution is out of the 7uestion in
modern *ndia & & & Jettisoning the mi3ed-economy in favour of a full-looded turn to
neolieralism is not a course that Modi-BJP should, can, or * elieve intends to ta"e& $hat (e
(ill see is a more roust and muscular style of leadershi!, some (hi! crac"ing against ig
time corru!tion, ut * e3!ect only a carefully managed turn a(ay from !o!ulism and susidies
to(ards usiness friendly !olicies and neolieralism#&
Jaitley-Modi-BJP have steered clear of assaults on !o!ulism or retraction of concessions to
lo( income classes even more than * had antici!ated& Ta3 concessions have een made to
those earning elo( *ndian ru!ees ,8-, --- and to seniors over 98 years of age, the feared
sales ta3 has een deferred to the end of the year, the *ndian house(ife has een !romised
relief in oil and some essential food !rices& The most significant retreat is that the #:ural 5o-
guarantee scheme, (hich !rovides .-- days of !aid em!loyment a year, (ill ecome more
focused on asset creation#0 a fran" admission that li"e ;an"as )amurdhi, once granted such
handouts cannot easily e (ithdra(n& The intention of channelling the scheme into !roductive
directions is good&
There is also a !romise to ma"e food and !etroleum susidies etter targeted ut large susidy
allocations have een set aside in ,-./-.8 for food <*ndian :s .&.8 trillion=, !etroleum <*:s
9>/ illion= and fertiliser <*:s +>- illion=& These three items add to *:s ,&8/ trillion, nearly
,&/? of *ndias @DP of A)B .&68 trillion <*:s ... trillion at .BC*:s 9-=& Jaitley said all
susidies ta"en together account ,8 to >-? of fiscal e3!enditure of *:s .+&D trillion& <Eumers
are hard for foreigners to deci!her ecause of so-called #Eon-Plan 23!enditure#, #Plan
23!enditure# and Assistance to )tates=& :evenue is estimated at *:s ..&D trillion0 the deficit of
:s 9 trillion is met mainly y incurring ne( dets of *:s 8&. trillion&
There is hardly a (hiff of neolieralism in the sense of an attac" on susidies and (elfare&
Than"s to this )ense3 dro!!ed y over 8-- !oints, Eifty (as do(n ,? and stoc"s of !o(er,
real-estate and infra firms crashed as *:s >
trillion of investor (ealth (as (i!ed out
(ithin a day of the udget& <This is a "nee-
5er" reaction0 the ulls (ill e ac"=& $hat
*ndian and international ca!ital demanded
(as austerity for the masses, cuts in
susidies and !runing (elfare, all of (hich
the ne( government, very (isely, dared not
deliver0 it (ould have een suicidal&
@ro(th oriented !romises
Eevertheless Modi-BJP-Jaitley economic
!olicy is gro(th oriented and foreign and
local investor friendly& There is a re!etition
of the !romise oft made y %ongress as (ell
to cut corru!tion and tame regulation-ra5&
These intentions are (ell intentioned and
deserve su!!ort though the ostacles are
enormous& There is a commitment to Pulic-
Private-Partici!ation <PPP= reminiscent of
%hinas massive use of Joint Fenture
2nter!rises in the .D6-s and .DD-s& This
(as ho( %hinas state-ca!italist economy (as constructed& Ta3 concessions and other lollies
(ill e offered to investors and economic ta"e-off relying on a state-ca!italist model is
!ossile& Gn the investment side, for starters, there (ill e ig o!enings to foreign ca!ital in
the defence and insurance sectors as the foreign holding ceiling has een raised from ,9? to
/D?& A friend dro!!ed me an e-mail as"ing (hy foreign ca!ital should e encouraged in
insurance since local mar"ets can cater to national needs& * dont "no( the ans(er&
The udget laid focus on critical infrastructure needed to s!ur economic gro(th <roads,
rail(ays, !o(er and air!orts= and made clear a commitment to attracting the !rivate sector&
'o(ever 2rnst HIoung, an accounting firm, in a statement said #<T=he government has to
tread (ith caution0 PPP models formulated more than .--.8 years ago have ecome osolete#&
*ndias largest construction e7ui!ment manufacturer J%B *ndia commented #$hile PPP in
relation to many ne( !ro5ects has een announced, a roadma! for e3ecution of e3isting held
u! !ro5ects could have hel!ed#&
Five ne( **Ts4**Ms are to e estalished0 *:s +-&9 illion has een set aside for the creation of
#smart cities#0 and four ne( A**M) <All-*ndia *nstitute of Medical )cience= centres are to e
o!ened& The state (ill assuredly e the leader in these ventures& Pulic hygiene needs massive
investment in a country (here 9-- million !eo!le defecate in the great outdoors0 maye this
enhances organic manuring ut it outsources health haJards& Massive investment is envisaged
in the rail(ays, the need for cross-country high s!eed lin"s and a colossal freight net(or" to
under!in industrial and agricultural gro(th has een underscored& These are amitious and
entirely a!!ro!riate targets and !rivate investment through PPP !rogrammes is needed if
ade7uate ca!ital is to e raised&
Asence of amition, commitment and determination has dogged *ndias catch u! game (ith
%hina and even if late in the day this oldness is to e a!!lauded& *ndias roadma! to fast-trac"
gro(th (ill e different from %hinas since it is a multi-!arty democracy, not a one-!arty state,
ut roust state intervention is unavoidale& Democracy is a slo( sto!-go !rocess, it must
!ermit dissent and reversal, ut it allo(s society to muddle through, it is not rittle& $ill %hina
survive another .D6/ Tiananmen )7uare li"e u!rising1 Parado3ically, in the long-run, !olitical
democracy is a more secure social contract than monolithic structures0 vide the )oviet Anion&
The !ur!ose of these caveats, ho(ever, is to ma"e a contrary !oint& There is no royal road to
ra!id economic gro(th in !oor countries <aout one illion *ndians live on less than B, a day=
than roust state intervention& Traditional ourgeois hac"s (ho dont gras! this have
com!lained that this udget is #sending mi3ed signals# and it is a #missed o!!ortunity&# %hina
is the !rime e3am!le of a ig country that achieved fast gro(th <(ith de!lorale
environmental rec"lessness and hard to contain corru!tion= using directive state !olicy K the
(ord dirigisme is used y !eo!le familiar (ith these things& A day after the $orld %u! finals
Modi (as in BraJil (ith :ussian, %hinese and )outh African leaders& 2ach case is different,
ut all have one thing in common0 the state must lead and direct economic gro(th& Gne sees
this, aleit to a lesser degree in other develo!ing !oor economies as (ell& *f the *ndian
economy is to gro( ris"ly it (ill have to e state guided or state-led ca!italism& Gh yes (ith
L*ndian features0 funny (e need to mouth these nonsense !hrases for the sa"e of !olitical
correctness&
Ies * am reading a lot into one event, the udget& Ies * am a(are that my !osition that the
Modi-BJP government (ill e com!elled to com!romise and ado!t a mi3ed-economic model
(ith sustantial state management and even state !artici!ation, contradicts mar"et minded
(isdom& )hallo( analysts and ourgeois hac"s have e3!lained, ad nauseam for three months,
that #Modis economic model (ill e different#0 that #the !rivate sector (ill ta"e control, drive
!rocesses and determine the character of the economy#& They fail to ta"e account of the
strength of *ndian !o!ulism <and democracy= and they have ignored the reality that the BJP, no
less than %ongress, is through and through a !o!ulist !arty& Iou dont agree1 ;ets (ait and
see0 ho( many ottles of single-malt are you !re!ared to (ager1
*ndian democracy is roust and devastation of the environment (ill e resisted y armies of
Arundathi :oys, (ho (ill, * trust, (in most of their attles& As *ndia gets richer, say as rich as
%hina, * am ho!eful that the !o(er of democratic !olity (ill cur graft more effectively than
in the Middle Kingdom& *t is not unreasonale to e confident of *ndias future& 'o(ever,
*ndian democracy has its (or" cut out for it& The Ja"arta Post has accused Modi ofM <i= ma"ing
Amit )hah BJP %hairman though his is out on ail on a murder charge, <ii= a!!ointing Mu"hul
:ohtagi, the attorney for ig com!anies in the huge telecoms scam as Attorney @eneral, <iii=
loc"ing the a!!ointment of @o!al )uramanium to the )u!reme %ourt y (rongful
!rocedures, <iv= illegally a!!ointing Eri!endra Misra as secretary in the Prime Ministers
Gffice, and <v= covering u! for education minister )mriti *rani filing a false affidavit aout her
educational 7ualifications, a criminal offence& This guy has to e sto!!ed efore he ecomes
another :a5a!a"sa&
*ndias long-term economic <and !olitical= !ros!ects are more assured than ;an"as for the
reason that its !olitical leadershi!, most of the time since .D/6, has een serious aout its
usiness K admittedly the outgoing %ongress government, Manmohan )ingh not(ithstanding,
(as a failure& 'ere in ;an"a, at least in recent years, miserale - (e have suffered a unch of
uffoons, lining their !oc"ets, ausing the !o(er of incumency, and sto"ing ase rale
!assions to hang on to office& Gver there they have one cainet minister for every 8, million
!eo!le, here in ;an"a (e groan under the yol" of some /- !olitical dalers in cainet <* have
lost count= for a !o!ulation of ,. million& *s this not sym!tomatic of (aste, amateurishness
and ran" lac" of !roity1