ECO-LATTE. A Budget epiphany

It’s fair to say that Budget 2020, which finance minister Nirmala Sitharaman presented in Parliament last week, conforms to the pithy description of such ‘statements of accounts’ by an unlikely US President some years ago. It was clearly a Budget, George W Bush had said: It had a lot of numbers in it. It also had an excess of invocations of civilisational greatness, polylingual poetry, and details about policies and programmes that were so granular that even Treasury Bench MPs felt compelled to perform meme-worthy eye exercises to mask their glazed look.

As with wit, brevity is the soul of Budget speeches: Some of the most consequential Budget addresses in recent memory markedly abided by the philosophy that less is more. The exception to this, of course, was the wordy 1991 Budget presented by Manmohan Singh, but in its defence it at least had something to show for it: It represented inarguably the beginning of a new epoch in India’s economic history. Budget 2020, on the other hand, represented in some measure the triumph of the self-indulgent speechwriter over the moderation-minded minister. In the end, it proved too exhausting even for Sitharaman.

The Budget was also something of a high-wire act for her. In the run-up to it, confronted with an economy in sharp slowdown (which she pointedly did not acknowledge by name in her address), Sitharaman faced conflicting choices. The more clamorous voices called for stepped-up governmental spending — the classical Keynesian response — to stoke consumption demand by getting you to spend more. But given the shortfall in revenue collections for this year, and since the fiscal deficit — the gap between the government’s income and expenditure — had already been blown, the government had little or no capacity to go over the top.

But the alternative, of skimping to balance the books and propitiate the gods of fiscal rectitude, too, came laden with the risk of a more pronounced slowdown.

In the end, Sitharaman appears to have steered clear of any suggestion of ‘fiscal activism’, opting instead to scale back outlays. But despite that hint of austerity, which could inevitably delay a revival, the government will almost certainly be living beyond its means well beyond next year. And if the ambitious disinvestment targets set in the Budget are not met — a contingency that seems highly plausible, given the government’s record of the recent past and the perceived diminution in its political goodwill — a fiscal black hole will suck in even the most well-meant governmental efforts at reviving the economy.

As might be expected in these hyperpartisan times, former finance minister P Chidambaram criticised the Budget, claiming that it symbolised the wholesale capitulation of the government’s resolve to revive the economy. And yet, even the sobering governmental acknowledgement of its limited capacity in single-handedly orchestrating such a revival is, in some ways, a good thing. For far too long, successive governments have shaped India’s economic and industrial destiny with a heavy hand in the mistaken belief that they were the ‘ bhagya vidatha ’ of last resort. We may have come a long way from the days of the licence raj, when companies were penalised for producing beyond their approved capacity, but governmental intrusions into ‘the business of business’ and into the lives of ordinary folks still border on the egregious. Any retreat on that front would be highly desired.

That philosophy seemingly governs one of Sitharaman’s signal policy measures — which, in fact, started with the lowering of corporate taxes last year, and continued in the Budget with the recasting of the personal taxation architecture at the lower- and middle-income levels. In both instances, she offered taxpayers a choice: Forego exemptions and deductions (which have the effect of steering investments into channels that the all-knowing government deems worthy of patronage) and enjoy lower tax rates. It’s true, of course, that the tax rates have to go a lot lower to incentivise the migration to the ‘libertarian’ alternative — and less-cumbersome — universe. But, in spirit, they signal a step back from the ‘government knows best’ spirit that underlies policymaking, right down to managing the microdetails, without giving corporates and individuals any agency over how they manage their money.

For a nation attuned to dependency on the mai-baap sarkar , this is a defining rite-of-passage moment worthy of celebration. Even given the complexities of the new taxation structure — which will, hopefully, be ironed out over time — individuals (up to an income threshold, and within the limitations of their own circumstances) now have an element of choice over their money matters. No longer need they be shepherded down government-directed avenues. That sense of agency, however, comes with a modicum of responsibility, and the requirement of rudimentary levels of financial literacy. Sitharaman has offered us a glimpse of the taxational landscape of the future: All tax exemptions, she said categorically, will be gone. That future will require us to be better informed about our choices. That responsibility, however, is a small price to pay for quasi-freedom from state overreach and intrusions into our money management choices. If that freedom is born of an epiphany in government about the limits of its own capacity, may the state be abundantly blessed by many such flashes of realisation!

Venky Vembu is Associate Editor, BusinessLine; Email: venky.vembu@thehindu.co.in