Budgets are essentially the annual financial statement of the government’s income and expenditure. This column had observed in February 2021 that in her third essay Finance Minister Nirmala Sitharaman had “effectively put a lid on all speculation about the “imminent” change at North Block”. With her fifth essay, Nirmala Sitharaman has effectively established herself through her style -- of under-promising and delivering on numbers.
The consensus view about Budget 2023 is that it has resisted the populism that elections trigger and enabled growth with an increased allocation for infrastructure. For sure, a diligent audit of the past will reveal many slips – between the real rate of hike in allocations and the systemic capacity for implementation. And yes, there is nothing to stop the government from altering the fiscal math – as it did last year – in response to the animal spirits of electoral politics. This is visible in states – Madhya Pradesh recently announced a monthly payment of Rs 1000 to all women who don’t pay income tax.
Shorn of the optics Budget 2023 is verily a “no harm done budget" with some nudges for an “Atmanirbhar GDP” and is betting on domestic consumption. The fiscal deficit even if one accounts for the promise of reduction is worryingly high – in terms of gross market borrowings the government will borrow Rs 4227 crore a day and pay in interest Rs 2958 crore per day. The consensus and applause is scaffolded by a hopeful assumption that growth will sustain -- and is vulnerable to global uncertainties.
Beyond the numbers, budgets also represent the continuum of policy initiatives. Studies in behavioural economics suggest that individual and institutional behaviour responds to stimulus of choices. India is a Union of States and the GDP is the sum of what the state governments do or more often shackled by what state governments fail to do.
Theoretically allocations are meant to catalyse change in the states. Every budget speech is garnished by futuristic ideas. Ideas are impacted both by duration risk – the longer they are stranded and pending the lower the chances of success. And this is influenced by the challenge of political indigestion caused by vested and electoral political interests. Nobel laureate Robert Thaler observed that “in order to learn from experience, two ingredients are necessary: frequent practice and immediate feedback.” So what happens to the promising ideas budget speeches are laced with?
Five years is a long enough gap in time for looking back at forward looking ideas. In February 2017 the government presented some very smart ideas which were lauded by this column. The Budget of 2017 announced three powerful ideas: a model law for contract farming that was shared with states, a scheme titled Mission Antyodaya for funding capacity creation and modernization of Panchayats to make 50000 panchayats poverty free and a model code which consolidated labour laws into four codes.
How have the ideas panned out? Take the model law for contract farming. In December 2022 the government informed Parliament that 15 states have “provisioned model contract farming law in their APMC Acts”. Post the withdrawal of farm laws the idea lies stalled. Mission Antyodaya, as per a standing committee report is grossly underfunded with barely a tenth of allocations released and is stranded between definitions of “utilisation of funds by states” and platitudes as it awaits an advisory committee. As for the new labour codes Parliament was informed that “towards implementation of the four Labour Codes, the Central Government has pre-published the draft Rules, inviting comments of all stakeholders”.
Frequently schemes are reincarnated with new contours or formulas to address an old problem. Budget 2023 states “States will be allowed a fiscal deficit of 3.5 per cent of GSDP of which 0.5 per cent will be tied to power sector reforms.” Specifically, the extra room has been created for states to address the issue of losses in state Discoms. It is a reflection of the triumph of hope over history.
In 2015 the government launched UDAY (Ujjwal DISCOM Assurance Yojana) to enable states to assume the debt of Discoms and modernise them. In 2020-21 aggregate losses of Discoms increased to Rs 88,500 crore and AT&C losses (caused by inefficiency, freebies and theft) touched 22.32 per cent. The February 2021 promise to open up the sector to “introduce competition” and “give consumers alternatives” is pending action.
These are a few instances which symbolise the gap between promise and performance. This budget too is dotted with many new ideas which trigger both expectation and scepticism. An abiding truth about governance in India is that it excels in projects – whether it is Jan Dhan Yojana or rural electrification -- but struggles to reform processes which determine efficiency.
The crux of success rests in the alignment of national goals with systemic reforms in the states to propel growth. A mystifying paradox is at play in India’s political economy – of attention and inattention. There is much debate and audit of the Union Budget and almost none about the budgets of state governments.
Finally, every year India rises in expectation in the run-up to the Budget – that this is so three decades after liberalisation is a testimony to how much needs to be done.
Shankkar Aiyar
Author of The Gated Republic, Aadhaar: A Biometric History of India’s 12 Digit
Revolution, and Accidental India shankkar.aiyar@gmail.com