Or will the economy falter and fall despite some remarkable measures in this year's BudgetIJ And is it politically wise to dump the middle classes though it might make economic senseIJ
The once venerable and deservedly venerated news magazine, The Economist, is no admirer of Prime Minister Narendra Modi. On the contrary, if its graceless criticism of Modi in issue after issue is to be taken as any indication, the British magazine holds the chaiwallah who has risen to head the Government of India and lead a country with more than a billion people, in contempt. Such is The Economist’s loathing of Modi that it sees Rahul Gandhi as a better choice for the Prime Minister’s office.
It was, therefore, surreal to see The Economist run a cover that declared “India’s Economy: A chance to fly”. It showed Modi as a turbaned mahout crouching on an elephant fitted with jet engines. Those who have been tracking The Economist over the past two years and are well disposed towards Modi would have surely sniggered at the magazine trying to do a somersault, unless it was being nasty as usual.
Strangely, or perhaps not, Union Finance Minister Arun Jaitley seized upon the headline “India’s Economy: A chance to fly” to spin his Budget 2015-2016 one-liner “India is set to take off”. Only habitual naysayers, professional poverty-mongers and the deflated lot who still rally round the Nehru Parivar would contest that claim.
Phoenix-like the Indian economy has risen from the ashes to which it had been reduced by the Congress and its cronies in the UPA. The ‘feel good factor’ which triggered the India Story during Atal Bihari Vajpayee’s NDA1 years is palpable once again. We need not lend our ears to the cavil of Deepak Parekh who would have us believe that nothing has been done by Modi Sarkar in the past eight months to kickstart the stalled national economy.
It is against this backdrop of soaring hopes and Modi’s promise of ‘Achhe Din’ that we should view the popular response to the Budget that was presented to Parliament on Saturday. Those who expected big bang reforms were let down. Those who looked forward to major sops like tax benefits for the middle classes were disappointed. Those who had hoped for a sharp turn to the right were left wondering.
None of these responses were really called for. The Economic Survey, which made a loud political statement on its cover by showing how India’s GDP growth (eight per cent at the end of the year, 10 per cent in three years) was nudging ahead of China’s, also made it unambiguously clear that Modi Sarkar will opt for incremental reforms over big bang reforms. It also discounted sops for the salaried classes and gave no indication of a right-ward shift.
So to now accuse the Government of letting down the middle classes makes no sense. In any case, notional tax exemptions have not exactly added to their prosperity or wealth creation. Enterprise has. And this is where the Budget scores. It promotes job creators over jobs seekers through a host of measures. It also aims at job creation through massive spending on infrastructure and agriculture.
Also, for a change, the Government has taken the considered decision to encourage savings, especially in pensions funds, through tax benefits. The middle classes could at the most benefit to the tune of nearly Rs4,50,000, which is not a small amount compared to raising the exemption on income tax by, say, Rs50,000. At lower income levels, the benefit could be Rs50,000 in the least. The lesson to be drawn is simple: Stop expecting new trains and sops come February. It could be argued that corporates will benefit from the decision to decrease corporate tax from 30 to 25 per cent. But what this over-simplification overlooks is that corporates will also lose a host of exemptions and pay more than the actual of 23 per cent they were paying till now.
This Budget will also be remembered for two extraordinary moves by the Government. The first pertains to the creation of an actual social safety net for the underclasses through three insurance schemes that will require a nominal premium ranging from as little as Rs12 a year to Rs1 a day. For a change, instead of being promised butter, the masses are being offered JAM — direct cash transfer of benefits through Jan Dhan Yojana accounts, Aadhar cards and mobile phones.
Together these measures could radically alter the landscape of India, drastically reducing poverty levels. That, in turn, would ease the burden on the middle classes. Achhe Din need a gestation period. Although it would be unwise of Modi Sarkar to entirely ignore middle-class angst. Good economics often makes for bad politics.
A last point that needs to be made pertains to the unwelcome hike in service tax and the welcome deadline for Goods and Services Tax which will come into effect from April 1, 2016. The second, first. India has waited far too long for GST and any further delay on account of dilly-dallying States is unacceptable.
As for the first, Government needs to mobilise resources for an empty kitty. With States now getting the proverbial lion’s share, the Union Government has to be more inventive. Raising service tax which in turn will push up prices cannot be the only route. This is one move which Modi Sarkar will find difficult to sell. But then, as a wise wag pointed out, the next election is in Bihar.
Coming back to where we started, the real challenge for the NDA2 Government is to make the Indian economy fly. If it fails to do so in the second year of its five-year tenure, then it is unlikely to succeed in the remaining years. let’s not forget, oil won’t remain cheap forever.
(The writer is a Delhi-based senior journalist)