Fiscal prudence has been thrown out of the window for votes in 2019 elections

In attempting to please every vote bank that counts, the NDA government has clearly exposed its nervousness

What a difference five years make. In July 2014, when the National Democratic Alliance (NDA) unveiled its first full budget, finance minister Arun Jaitley made clear that the NDA was against “mindless populism”. “India,” he said in a media interaction, “has to make a choice between mindless populism and fiscal prudence…. the general elections of 2014 have proved that you don’t need populism to win elections.”

Five years later, as finance minister, Piyush Goyal, broke convention and converted an interim budget into a full budget, the turnaround is complete. Mindless populism is all that the NDA will go to the polls with. Fiscal prudence has been compromised in favour of pleasing every conceivable vote bank the NDA can appeal to.

As Goyal stated in his speech, fiscal deficit targets have been sacrificed to make way for the farmer income transfer scheme without which “fiscal deficits would have been less than 3.3% of GDP this year and 3.1% for next year”. Add to this the tax cuts for the middle class and the strategy is clear: it’s populism all the way.

In attempting to please every vote bank that counts, the government has clearly exposed its nervousness. That a government about to go to the electorate after five years in power has to make its case on future promises rather than achievements of the past is a clear admission of failure. Although, true to style, Goyal lost no opportunity to use the budget speech to share his government’s achievements and vision for the future. So much so, that this columnist spent much of the budget speech wondering whether it was written for an election rally. Undoubtedly, the fact that this budget broke the long-standing convention of interim budgets being just that — interim — is going to be the headline of the day. But this budget also broke convention by converting a budget speech — which ought to be a standard presentation of policies and revenues and expenditures — into an electoral pitch. This is a dangerous precedent.

The showstopper of this budget is the PM-Kisan Scheme (PMKS): a ~6,000 per year direct income transfer for small and marginal farmers with a budgetary allocation of ~75,000 crore. Importantly, the budget speech made clear that this scheme is to be implemented retrospectively from December 1, 2018, for which ~20,000 crore is being allocated in the revised estimates for 2018-19.

This raises an important concern. Can the budget be used to introduce retrospective expenditure? In keeping with basic public finance management principles, in December every year, the government revises its expenditures, based on past performance. But the introduction of new schemes and new line items is rare. In fact, this is probably the first time that a budget speech for a new fiscal year has been used as an opportunity to introduce expenditure for the previous year. Introducing retrospective expenditures undermines the basic integrity of the budgeting process, and, as a practice, ought to be discouraged.

Now to the merits of the scheme itself. On its own, the PMKS is no more than a shortterm relief to a deep structural crisis. It may get the NDA votes (or at least that’s what the NDA is hoping for) but it is definitely not going to address the root causes of the current agrarian crisis. But taken together with the Congress’s big announcement, earlier this week of introducing a basic minimum income guarantee programme, if elected to power, it does indicate a growing consensus among India’s politicians that a targeted basic income is the new future for welfare in India and this is likely to be the dominant issue for the 2019 election.

Within minutes of the budget announcement both the Congress and the Bharatiya Janata Party found themselves locked in a heated competition on TV channels over whose income support programme was more expansive and progressive. But this new consensus raises important questions.

First on feasibility. By moving in this direction, we are committing ourselves to a new welfare architecture without considering whether the underlying conditions for getting this right are in place or what it will take to put these systems in place. Most importantly targeting beneficiaries, tackling citizen disputes, managing the banking system are not trivial tasks and require far more sophisticated administrative capabilities than the Indian State has today. In fact even for the PMKS targeting is going to be its greatest hurdle.

Second, and more important, this intense political focus on income transfers also risks limiting our imagination and aspiration for what a welfare state can achieve in India. Although proponents of income transfers have been careful to argue that it is not a substitute for investments in core public services like health and education, the fact is that these are not part of the current political debate (Ayushman Bharat is very much an income transfer).

As India goes to vote, the message seems clear for the moment. India’s voters can expect some cash from its politicians. But they’ll need to find better schools and hospitals on their own.

UNDOUBTEDLY, THE FACT THAT THIS BUDGET BROKE THE LONG-STANDING CONVENTION OF INTERIM BUDGETS BEING JUST THAT — INTERIM — IS GOING TO BE THE HEADLINE OF THE DAY