Interim Budget does an about-turn

Finance Minister P Chidambaram used the Interim Budget to finally spell out the terms on which the Congress will fight the coming election. These are not, as one would have expected, a recall of its historic legislations that (in its second term as the dominant partner in the UPA coalition) it had pushed through for the vast majority of poor Indians. The fact that he pruned social sector spending, calling it “savings”, bears testimony to an internal struggle over the appropriate line the party should take in future. In his speech, the Minister shed some light on the perspective that would inform the party’s electoral thrust.

The Budget, therefore, was more than the sum of its parts, and certainly more than an exercise at boosting demand through excise cuts for the automobile sector (that policymakers and the media have consistently believed determines both the pace and contours of economic growth).

In making a point about the reduction of fiscal deficit to within the “red line”, the Finance Minister was claiming more than just a pat for fiscal prudence. He was signing off on a statement of purpose, a set of principles by which the UPA , or at least the Congress, would abide by in the years to come.

In that sense, the Budget was a historic event for it enunciated the road the UPA had travelled in the past decade and the path it would now take.

The speech, then, resolutely set out the Congress’ agenda for the election. Its provisions — tax cuts, the stress on government spending curbs, optimism about growth — add up to more than just a plan to revive consumer demand and thus growth. The Budget addresses the middle-class, the global investor and the private sector with a discourse on reviving the economic growth cycle; it de-stresses government spending. Unless the Congress bigwigs spell out something different, one can assume that the agenda for whatever it hopes to achieve in the coming election will pitch the grand old party — that had for decades positioned itself as the ‘nationalist’ party of the masses — as a middle-class one, capable of once again setting the organised sector on a path of high growth by virtue of its record.

Consider the way the speech laid emphasis on the global scenario. By drawing our attention to the uncertain global economic and political outlook, the Finance Minister was also informing his audience (the middle class and industry) to what extent India had been integrated into that system.

This is a radical departure from the tone used in the Interim Budget speech of 2009 at the end of UPA-I rule. The then finance minister Pranab Mukherjee stressed the importance of domestic efforts to attain high growth even though exports had grown considerably, from 23 per cent of GDP in 2003-04 to 35 per cent in 2007-08.

So, in the best of times, the domestic economy was the prime mover of growth in India, unlike in China where mass exports shaped its growth story. Even after the collapse of the world economy after 2009 and persistent sluggishness in world trade, the slide in India’s rates of growth must be attributed more to the decline in the drivers within the domestic economy. Investments are down, corporate debt is high, banks are loaded with NPAs and inflation reigns. The agonising of the media and some policymakers over the US Fed’s policies on ‘tapering’ is a lot of hype, which takes the attention away from the failures of domestic policy in the last two years. Yet, if the Finance Minister continues to draw our attention to the global scenario, it can only be to convince a dispirited industry and middle-class that India’s fortunes are shaped or reshaped by the global links the country has created in the last 10 years under the UPA’s dispensation.

The global orientation was established at the outset when Chidambaram’s reminded us that the “challenges we face are common to all emerging economies”. Citing the Global Risks 2014 report, the Finance Minister erased the particularity of India’s problems by drawing our attention to global risks: structural unemployment, political and social instability, fiscal crisis, income disparity, governance failure and food crises.

The suggested solutions were also of a piece with policy initiatives that would find favour with a global investor. Reducing excise duties seems about the best that governments can do under the circumstances to encourage private spending on the one hand and fiscal consolidation on the other.

The Interim Budget is remarkable for what it does not say. At one level, it appears to be a routine exercise, offering some concessions to various sections of the middle class and industry. But in doing so, the Interim Budget seeks to transform the image of the Congress as a lobbyist for middle-class aspirations. Ever since the Prime Minister’s exit press conference, the Congress had seemed to be drifting aimlessly, reflecting a conflict of perspectives. For its part, the BJP pressed home its charismatic prime ministerial candidate’s record of leading-from-the-front growth.

And as the BJP ramps up its campaign among a middle-class eager for strong leadership, so will the Congress shed the last vestiges of its earlier campaigns.

But, regardless of the image the BJP and the Congress wish to project, India will remain a poor country, beyond the wash of the neon lights. This election may be the first in which the poor will not be wooed as a vote bank.