Over the last several days I have read through many opinion articles, several emails and of course WhatsApp messages about the Budget, each of them expressing their thoughts about it and its likely impact on the economy. Not all of them were positive, but even those who were a bit pessimistic were more so on the tariff changes rather than any other part of the Budget.
Even the harshest of critics have appreciated this Budget—and that is a testament to the ability of the finance minister and her team to stick to what is necessary for the economy. To be fair, even I was one of the harsher critics of her first Budget. But ever since then, every Budget has pushed me hard to find any critical flaw. Not that there aren’t any flaws, and of course there are things that could be better, but then again, no Budget can be perfect on all accounts. Moreover, with time it has dawned upon me that most of the Budget analyses are done with respect to a subjective wish list that the authors have. If the Budget meets those wishes, then it is great, else not so much. This is truer for financial analysts and commentators and even occasionally, for me too.
Another confession is that many of us, especially those who study economics, have fallen victim to our sophisticated data-driven empirical methodologies. We tend to rely on them extensively even as we ignore the social and political context. As a result, many times we extrapolate the results to comment on issues with a definitive answer. But more often than not, the correct answer would be: it depends. For instance, if you ask if raising the minimum wage would lower unemployment, the instant answer would be either yes or no depending on the economic worldview of the individual. In reality, it depends on the extent of market power of employers and workers. In fact, on most issues, the answer is not as definitive as one would expect it to be. This is one of the reasons why the economic survey that comes one day before the Budget talked extensively about a more agile policymaking.
The Budget in many ways is a business-as-usual one, but not so much in terms of its innovative approach towards capital expenditures. More so as the government recognises its own constraints on being able to undertake capital expenditures and also in terms of its execution of disinvestments. Given these constraints, on the former, it has decided to allow states to borrow up to Rs 1 lakh crore for capital expenditures, while on the latter, it has been conservative in its projections.
Conservatism has crept in within the finance ministry’s thinking—even on revenue generation numbers, as very likely these will exceed the budgeted figures over the coming years. This is not a criticism of the approach. It is rather welcome that for once we have a finance minister who is more than happy to be conservative and overdeliver, instead of being like some of her predecessors who were ambitious and almost always underdelivered.
A non-eventful Budget was precisely what was required as the government was already fiscally constrained, and thus in a volatile global environment, economic fundamentals are desirable. The key, however, will be execution of a bulk of the capital expenditure plans going forward. As long as the states and Centre can ensure speedy execution, we should see a major transformation of our infrastructure over the coming couple of years.
Ultimately, this Budget was one that mentioned economic growth repeatedly and thus it has to be evaluated against that benchmark. The answer to many questions on public policy might be ‘it depends’. But to the question ‘Is growth desirable?’, the answer is a unanimous yes, given that central banks are hiking rates and so will the US sometime in March. Consequently, global growth is likely to slow substantially as the financial year progresses. Against that backdrop, an 8% growth is exceptionally good and would further endorse the pandemic response of the Indian government. There is extensive optimism regarding our economic prospects and while there is still uncertainty regarding the progression of the pandemic, one certainly expects the optimism to convert into real economic growth.
Karan Bhasin
New York-based economist
(karanbhasin95@gmail.com)