The Big Story: As you sow

One might be inclined to be charitable towards Finance Minister Arun Jaitley. Even though this was to be the last full Budget for his government, an occasion when the purse strings are generally loosened with an eye on elections, Jaitley had to grapple with the task of building a Budget in the aftermath of demonetisation and the rollout of the Goods and Services Tax. Those two shocks have left the economy reeling, leaving the government with very little money to play with. That may not have been reflected in the Budget speech Jaitley delivered – it had plenty of characteristic bombast and rhetoric – but the Budget documents are clear about it: There isn’t much to spend.

That generosity to Jaitley however, disappears when you remember why India is in this place at all. The government has had a stable four years in power with the first Lok Sabha majority in three decades, low oil prices, benign global conditions, stable inflation and, in the last two years, plentiful monsoons. All other things being equal, that should have provided enough fuel for the economy to be accelerating, rather than sputtering back into shape. But right in the middle of this, Prime Minister Narendra Modi decided to withdraw 86% of India’s currency and, a year later, delivered a hastily put together roll out of the Goods and Services Tax. The Budget calls these a “tailwind and a headwind”, but at the moment the economy seems to barely be treading water.

And so you have soaring rhetoric in the Budget speech that tends to disappear into the bushes of the actual documents. As the pieces below show, Jaitley may have devoted the bulk of his speech to the rural economy but almost nothing has actually changed in the outlays. Agriculture was supposed to be the focus, and new schemes were indeed announced, but there is little money on offer for them. The finance minister spoke of the world’s largest healthcare programme, being dubbed by some as Modicare, yet the budget documents showed that they were a repackaging of older schemes that have not achieved much. Outside of expanding loans to institutions, the educational sector has also not received much. In some ways, this is characteristic of Modi’s government: Plenty of talk and we’ll see about the actual performance some time later.

But this comes at a cost, quite literally in this case. The government has breached the fiscal deficit target it set for itself for this year, going from 3.2% to 3.5% and rejigged its “glide path” for fiscal prudence. A few years ago, this might have been better received by global markets, but with oil prices rising and monetary easing starting to end, it does not bode well for India’s borrowing efforts. Yields on government bonds spiked immediately.

It also offers less confidence about the forecasts for the coming year, which are full of aggressive expectations about revenue, even though the actual spending laid out in the Budget does not seem likely to spur much growth. A bet is being made on GST turning stable and that, in turn, bringing investor confidence back, but higher inflation and the looming spectre of the twin-balance sheet problem – with highly indebted companies and banks holding stressed assets – are as likely to be the main features of the coming year.

Jaitley may have done a commendable job offering a decent budget, one that makes do with what he has. But the finance minister no longer has the benefit of blaming his predecessors for his current predicament. Incrementalism did give way to big bang reforms, but those explosions have ended up being more destructive than constructive. Now he is simply trying to manage the fallout while singing praises to his leader in the corner in the hopes that no one will notice.

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Budget breakdown:

  1. Kumar Sambhav points out that, despite the big talk on agriculture and the rural economy, it is unclear where the actual money is.
  2. Shreya Roy Chowdhury speaks to education experts who say that, other than the expansion of loans for institutions, Budget 2018 is a non-starter for the sector.
  3. Mridula Chari takes a look at the new agricultural schemes promised in the budget, and finds that there is little money allocated for them.
  4. Nayantara Narayanan writes on how, with all its weight behind Modicare, Budget 2018 offers little for public health system.
  5. Shoaib Daniyal reminds us how Prime Minister Narendra Modi equated protectionism with terrorism in Davos, while his Budget happily puts fences around some sectors.
  6. The middle-class is feeling short-changed, writes Shoaib Daniyal again, thanks in particular to a new capital gains tax as well as the lack of any adjustment in the income tax slabs.
  7. The Field team took a look at outlays for sports, finding money for Khelo India, a merger of three schemes, and little else.
  8. MSPs, ModiCare and Hinglish: Rohan Venkataramakrishnan writes on how Jaitley’s Budget speech tried to shore up Modi’s rural credentials.
  9. Not everyone was happy about Jaitley switching between English and Hindi in the speech for the very first time, and many took to the internet to complain.
  10. The impression that the Budget was anti-middle class seems to have stuck quite quickly, also bringing out plenty of Twitter humour, with users saying “middle class gets debates, upper class gets rebates.”
  11. Smitha Nair has 5 quick takeaways from the Budget: