Is this, in the last financial year of the second Modi government, an election Budget?
Please allow me to respond to this with a counter-question. Do you remember the last year a government cut taxes for the richest, at the top rate, in any Budget, election eve or not? You would need to go back some decades.
Nirmala Sitharaman has done just that. She has cut the 37.5 per cent surcharge on the top rate of tax to 25 per cent and handed the richest a 10 per cent tax cut. Is this not an election year Budget then? Or, has the Modi government lost it?
If this is what we believe, we are still caught in oldthink in our political economy. We are missing the revolution of the past three growth decades.
We can explore answers to our original question more expansively. Is there any year when we do not raise the same question? I did so in my Budget-day article last year for sure. And I could have done it for any other year before that.
If there’s one thing we know about the Modi-Shah Bharatiya Janata Party’s approach to politics, it is that for them there’s no such thing as a less significant election. Even a municipal election.
Short fact: Every Budget in India is an election-year Budget. It is the government’s most important political statement on the economy. And what are elections about if not public opinion and politics?
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See it this way. In our inherited analytical formulae, we looked at the following as ingredients in an election-year-Budget: Big giveaways to the poor, tax cuts on petrol and diesel, the slashing of customs duties on items of mass consumption (not luxury items), large new distributive programmes and fiscal profligacy.
But we haven’t seen those for years now. Three growth decades have changed our political economy. We analysts are reluctant to change.
Indian families’ needs and expectations have also gone through a revolution across economic demographics. As this latest Modi-Sitharaman Budget demonstrated, politicians have understood this change. They are responding to it.
See the political messaging in this Budget. It is an uncluttered continuation from last year. Ever since the first year of the rise of Mr Modi, we have been listing three engines driving his politics.
One, hard, Hinduised and Hindi-ised nationalism. You see that in all the idiom and metaphors used in this speech as well: So many mentions of Amrit Kaal, for example. And all the yojanas named in the same Sanskritised manner.
Two, efficient, leak-proof delivery of the benefits to the poor. While at the same time minimising their interaction with the petty local bureaucracy and consequent friction and humiliations.
And three, the building of hard, visible infrastructure. So visible that the new skylines and landscapes loom large in the popular mind. Ideally, so the prime minister can land on the new expressways in IAF aircraft, and go on to a flurry of inaugurations in the run-up to the elections.
While there has been a consistent increase in the allocation for highways — it grew by 36 per cent in the latest Budget — Railways saw a big jump, going up by nearly a trillion rupees from Rs 1.4 trillion to Rs 2.4 trillion. The highways have been exploited electorally. Now move on to the next big thing. Much wiser people are looking at the numbers, sectoral allocations, fiscal deficit, inflation prospects and so on. But politically, this Budget is a statement of confidence, bordering on overconfidence in fact.
With a 10% tax cut for the super-rich, has the Modi government lost it? If this is what we believe, we are still caught in oldthink in our political economy. Is this, in the last financial year of the second Modi government, an election Budget?
Some confidence comes from having kept the fiscal deficit within manageable limits. That, when so many countries, richer and poorer (especially in the neighbourhood), have ruined their fiscs in the three pandemic years. This government kept its counsel and did not listen to well-meaning if panicked economists. That India’s economy is in a relatively good place is a reward for holding its nerve.
Confidence also shows in keeping the defence Budget nearly constant. Inevitably, the pension costs have gone up because of the latest One Rank, One Pension (OROP) hikes and arrear payments. But capital outlay (or in common language, acquisitions) is up only Rs 12,000 crore or 8 per cent, and is trailing even the nominal GDP growth of 10.5 per cent. The Modi government feels sure that there won’t be a conflict and will probably wait for the Agnipath scheme to kick in when the Army manpower and wage bill begin to decline by next year.
The classical ploy in Indian political economy is to be seen hurting the rich to please the poor. Two years back, the Modi government slashed corporate taxes and drew wide opprobrium. A government for the rich, for the Ambanis and Adanis.
That they’ve done something similar, though on a smaller scale, for the richest individuals, shows two things. One we are sure about: That they think they are so far in front for 2024 that they can take these risks.
The second also comes wrapped in some optimism on our part: That the lowering of personal tax rates will also lead to enlarging overall tax collections. Which is exactly — as this Budget also affirms — what has happened with corporate taxes.
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