The Big Story: Baby carrot

Finance Minister Arun Jaitley will rise on Wednesday to present his fourth budget, with the Bharatiya Janata Party-run government under Prime Minister Narendra Modi having passed the halfway mark of its five-year term. Modi came to power on a wave of anti-corruption sentiment after a decade of Congress-led alliances, promising to run a government that is more competent and which would take all Indians along as it ensured development.

On a few counts, Modi has delivered. Governance at large has been more competent – at least until his demonetisation plan in November revealed sharply the limits of the Indian state and financial system. Broad economic indicators, like balance of payments, the fiscal deficit and inflation are in positive territory. The government has also made some important structural moves, like introducing a bankruptcy law and a monetary policy committee, all of which should go some way toward improving the general business environment.

The same cannot be said for the headline promise of development. India’s economy, nearly nine years after the Great Recession, still looks shaky with no promise that it will change. Despite being the world’s fastest-growing major economy (an indicator aided by a slowdown in China), the actual indicators from businesses suggest much more trepidation about conditions in India. Specific data points, from non-performing assets to job growth to agricultural productivity, all point to an economy that looks like it is booming without actually changing the lives of most people.

Demonetisation has not helped. Modi’s massive currency exchange project acted as a huge shock to the system, halting much economic activity and endangering the growth figures that were slowly getting back on track. Gross Domestic Product growth could now come down to 6.75% after promises from Jaitley that India would be booming along in the 8+% territory. The Economic Survey also points out that the decision caused job losses and added much uncertainty to the economy, with no quantifiable immediate gains.

The other big economic move might yet be more positive. After decades of discussion, India looks closer than ever before to a Goods and Services Tax, though some implementation concerns remain. This sees states and the Centre give up some fiscal autonomy, in the hope that one common Indian market will increase efficiency, reduce red tape, improve business sentiment and, overall, drive growth. All of this is dependent on the government actually being able to push GST past the sticking points that remain.

Which brings us to welfare. As mentioned earlier, the government has ensured some competence but without offering either the GDP numbers or job growth that would lift all boats. Indeed, it did the opposite, delivering a giant shock to the economy in the form of demonetisation and forcing citizens to suffer for still-unclear gains. The budget will have to make up for this in a manner that doesn’t amount to a one-off.

An uncertain business environment will need a great deal of public spending to keep sentiment high. If there is any windfall to be had from demonetisation (which still remains unclear because of opacity in operations), the government must heed the Economic Survey and use it for capital expenditure that will bring genuine welfare to the people rather than token largesse. If demonetisation was the stick, it amounted to a lathi charge. What will the carrot look like?

The Big Scroll:

Subscribe to “The Daily Fix” by either downloading Scroll’s Android app or opting for it to be delivered to your mailbox. If you have thoughts or suggestions about the Fix, please email rohan@scroll.in. If you have any concerns about our coverage of particular issues, please write to the Readers’ Editor at readerseditor@scroll.in.

Punditry

  1. Ashutosh Varshney in the Indian Express says what many have been saying for a while: Demonetisation was a purely political move with no economic rationale.
  2. You can’t challenge Aadhaar on privacy grounds, simply because there is no fundamental right to privacy, the government told the Supreme Court, as reported by Nikhil Pahwa in Medianama.
  3. A leader in Mint lays out five guidelines for a successful budget, including promoting competition, making spending more efficient and intervening in market failures.
  4. Swaminathan Aiyar in the Times of India says that the Economic Survey hints at a windfall to the government from demonetisation, which ought to be turned into spending for the public.

Giggles

Don’t miss

Linda Chhakchhuak tells the story of a man who got off a train at a mid-way stop and then was lost for four years, that is until social media came along.

“The events of December 12 are still hazy in Sillian’s account, in part because he is still recovering from the shock of losing and finding his way home again. When the train stopped at Howrah station, Sillian said, he followed his companions on to the platform. In the rush of passengers and hawkers, he lost sight of them and in the ensuing confusion missed his train, as it pulled out of Howrah. Sillian was left stranded on the platform all night, unable to speak or understand Bengali.

Upon his return, Sillian revealed that he was picked up by the Kolkata Police for vagrancy and taken to the lockup for questioning. Terrified because he could not understand or answer their questions, while he was being taken to be produced in the court next day, Sillian ran, away leaving all his belongings – including his cellphone and identity proof – with the police. Wandering around the city, he finally landed up in the Sector 5 area of Salt Lake. This is where he lived on the streets for the next four years.”