The RK Puram Budget

RK Puram is a determinedly down-market neighborhood in southwest Delhi. It is chockablock with government colonies for middle-level bureaucrats, schooled in the cruel education system that strips young people of hope and ideals; the cynics who have held the economy to ransom.

These housing settlements are pleasant enough with lots of shady trees and large green spaces. The apartment buildings, however, are a different story: built by the Central Public Works Department, they are shoddy and ugly; islands of bad design in an otherwise nice environment.

RK Puram sprang to mind as I reviewed the 2015 budget of the absolute-majority BJP government. In his budget speech, the finance minister presented us with an economic RK Puram, dressed up in rhetoric and intention but tacky, grotesque and dysfunctional in content. Bottom line: higher taxes, higher government spending and significant tax policy obfuscation to keep everyone guessing.

This budget is especially prone to criticism because the government leadership has mindlessly hyped its sermon of happy days: a new and improved “India Shining” with gleaming highways, bullet trains, smart cities, soaring stock markets, a tsunami of foreign investment, gainful employment and “gili-gili,” a waving wand to banish the reality of blight and deprivation. Instead, as the first major government initiative, not counting all the diplomatic event management, the budget is seriously disappointing.

The finance minister, not particularly known for his grasp of economics and somewhat shorn of a sense of irony, said in his budget speech, “It is quite obvious that incremental change is not going to take us anywhere. We have to think in terms of a quantum jump.” The rest of his speech was devoted to what might best be called bureaucratic tinkering such as raising deductions in taxable income, easing resolution of commercial disputes and what have you. All the words and sentences and paragraphs of the speech could not obscure reality: it was a bureaucrat’s do-nothing budget.

Claiming credit for the introduction of a Constitutional amendment to facilitate a nationwide Goods and Services Tax (GST), the finance minister appeared to sweep under the rug, his party’s opposition to GST when the UPA first proposed it.

His was also the voice that could be heard in the recent Parliamentary debate over the land acquisition bill, proclaiming disingenuously against the Opposition’s “politics of obstruction.” He seemed to forget that his party had supported the UPA-sponsored bill while opposing everything else including the proposal to allow global retail chains to set up operations in India and the one to permit multinational insurance firms to increase stakes in their joint ventures. During the UPA’s two terms, the disruptions forced by the BJP were frequent, extended and virtually paralyzed Parliament.

The finance minister’s lack of a sense of irony was matched only by his lack of grace. This was abundantly evident in his ad hominem attack on the previous government, calling it a “scam, scandal and corruption raj.” These are not just the finance minister’s failings; almost no one in his party has the sensibility or moderation that is required of statesmanship.

To get back to the finance minister’s budget proposals, several of them of them stand out for their potential to hurt the economy:

First, the increase in service tax from 12.23 to 14 percent. Though the increase is less than two percent, its impact on small and medium service businesses is likely to be huge. In its search for “happy days,” the government needs to give such businesses access to credit and tax breaks to smooth their cash flow. They are the key to “development,” the backbone of the economy. The budget proposals will simply make it harder and harder for them to function. That’s not all: the proposed increase in service tax remains in suspense because there has been no notification by the government.

Second, the proposal to allow the fiscal deficit to balloon to 3.9 percent of Gross Domestic Product instead of the restricting it to 3.6 percent targeted by the previous government is troubling. The finance minister seems to have thrown fiscal rectitude to the winds and has, perhaps unwittingly, endorsed the waste and redundancy that are hallmarks of the bureaucracy.

Third, the assumptions trumpeted in his speech are at best fantastic. The notion that economic growth will exceed eight percent next year is simply outlandish. So is the minister’s assertion that the global economic situation has turned adverse. On the contrary, as former Prime Minister Manmohan Singh pointed out, external factors are favorable for India to chart a high-growth orbit once again. The hurdles are all internal and if this government was serious, the budget could have focused on addressing them. Instead, the finance minister’s speech seems to have been caught between hype and bureaucratic tinkering, a sure sign of the policy paralysis to come.

(An edited version of this post will appear in Education World, April 2015.)