A tale of two budgets
ALL budgets present an opportunity to reshape the political agenda but some do more so than others. That has been the case recently in the corridors of Westminster and also in Lutyens' New Delhi. In Britain, public attention focused on chancellor George Osborne while in India, all eyes fell on his vastly experienced finance ministerial counterpart Arun Jaitley. With centre-right governments in both nations striving to navigate through economic uncertainty while seeking to assert political authority, the expectations to deliver ran understandably high. In politics, as with much else in life, the context in which a debate is conducted tends to shape its narrative. In the event, neither budget delivered an emphatic vision. Not were the harbingers of doom proven unassailably right. What is clear is that the contest for the centreground remains wide open in both countries.
That is a facet which Osborne and Jaitley readily recognized. In many ways, there is an important connecting thread that can be detected between them. Both men retain a reputation for deftness and troubleshooting that has rendered them invaluable to the smooth machinery of governance. A tactical nous certainly binds them. Thus, while Osborne's inheritance tax-based announcement warded off Gordon Brown's plans to call an early election in 2007, prominent cover stories such as India Today's 2014 feature about the 'indispensable Mr. Jaitley' have had the ring of truth about them. The mutual admiration between the duo was evident from Osborne's trip to India in 2014 to the more recent discussions in January 2016 at the 8th UK-India Economic and Financial Dialogue in London. Yet, as each man knows only too well, in an era that is still reeling from the financial crisis, the challenges for governance have only increased.
The Narendra Modi government was hoping that the budget provides it with much needed temporary relief. After a subdued performance in the recent assembly elections in Bihar, the Jat reservation agitation from Haryana that spilled over into Delhi and the Kanhaiya Kumar saga, positive headlines were badly needed. That wasn't quite to be. The controversy over the Employees' Provident Fund (EPF) withdrawal restrictions that angered the middle classes put paid to that.
To be fair to Jaitley, the task of presenting a budget that would reassure markets, placate allies and invigorate voters was never going to be easy. That said, the markets have been cautiously optimistic. The emphasis on reinvigorating infrastructure development, tax rebates for low-income groups, easing duties in certain sectors to further manufacturing and a push towards financial sector reforms were all positive indicators. On the other hand, with an eye on impending assembly elections during the new fiscal year, the government has clearly tilted towards populism with a huge spending outlay on the Mahatma Gandhi National Rural Employment Guarantee Act ( MNREGA) and other public subsidies that stand to incur mind-boggling aggregate costs of over Rs.87,000 crore. The worry remains that the government's fiscal consolidation agenda remains dependent on questionable assumptions.
In addition, not formally reversing earlier attempts to retrospectively provide 'clarity' to the Income Tax Act also stood out as a subject for lengthy jurisprudential discourse-suffice to say that overseas investors are unlikely to see it as a confidence-inspiring measure. The prospect of deeper structural reforms in key areas-particularly those touching the retail sector-hasn't been addressed with depth. The government may find it electorally convenient to avoid broaching challenging reformist questions. Yet the flipside of this hesitation lies in a steady erosion of authority and purpose.
From a comparative perspective, the exigencies of a governing in an area of diminished public spending have also made a presence felt in Westminster. The looming referendum on Britain's relationship with Europe also served as a critical contextual motif. Osborne sought to simultaneously make a case that Britain's long-term interests were best served by a prudent Tory administration and by remaining within the European Union given the uncertainties associated with an exit. A focus on cutting capital gains tax, lowering corporation tax and easing the burden on small businesses were all welcome, as were the incentives to boost savings among the younger population.