A tale of two bud­gets

The Pak Banker - - OPINION - Rishabh Bhan­dari

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.

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