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R.K. Puram is a determinedly downmarket neighbourhood in south-west Delhi. It is chock-a-block with government colonies for middle-level bureaucrats, schooled in a cruel education system that strips young people of hope and ideals, and transformed into cynics who have held the economy to ransom.
These housing settlements are pleasant enough with shady trees and large green spaces. The apartment buildings, however, are a different story. Built by the Central Public Works Department, they are shoddy and ugly; islands of inferior design in an otherwise pleasing environment. Decent homes in the neighbourhood would sell for upward of several crores… but the colonies of R.K. Puram are free of price and value, odious abodes for dyspeptic babus who worship at the altar of mediocrity.
R.K. Puram sprang to mind as I reviewed the Union Budget 2015-16 presented on February 28 to Parliament and the nation by the absolute-majority BJP-led NDA government. In his budget speech, finance minister Arun Jaitley presented us with an economic R.K. Puram, dressed up with rhetoric and intention but tacky, grotesque and dysfunctional in content. Its bottom line: higher taxes, greater government spending and significant tax policy obfuscation to keep everyone guessing.
Not particularly known for his grasp of economics and innocent of a sense of irony, the finance minister said in his budget speech: “It is quite obvious that incremental change is not going to take us anywhere. We have to think in terms of a quantum jump.” This resolute intention apart, the rest of his speech was devoted to what might best be described as bureaucratic tinkering such as raising taxable income deductions, easing resolution of commercial disputes and what have you. All the words, sentences and paragraphs of the speech failed to obscure the reality that it’s a bureaucrat’s budget.
Claiming credit for the introduction of a constitutional amendment to facilitate a nationwide Goods and Services Tax (GST), the finance minister appeared to sweep under the rug his party’s opposition to GST when the Congress-led UPA first proposed it.
Likewise in the debate over the land acquisition Bill, disingenuously protesting against the opposition’s “politics of obstruction”, Jaitley seems to have conveniently forgotten that his party had supported the UPA-sponsored land Bill while opposing everything else including permission to multinational insurance firms to increase equity in joint ventures. During the UPA’s two terms, the disruptions forced by the BJP were frequent, extended and virtually paralysed Parliament. Now the party espouses both proposals.
The finance minister’s innocence of irony was matched by his lack of grace. This was abundantly evident in his ad hominem attack on the previous government, castigating its ten-year tenure as a “scam, scandal and corruption raj”. These are not only the finance minister’s failings; almost no one in his party has the sensibility or moderation required of statesmanship.
To return to the budget proposals, several of them stand out for their potential to hurt the economy.
First, the increase in service tax from 12.23 to 14 percent. Though the increase is less than two percent, its impact on small and medium service businesses — which employ a large percentage of the country’s workforce — is likely to be huge. To deliver its promised achche din (“happy days”), the government needs to provide such businesses access to credit and tax breaks to smooth their cash flow. They are the backbone of the economy, the key to the much-hyped ‘development’ agenda. The higher service tax proposed in the budget will make it progressively harder for service businesses to function. That’s not all: the proposed increase in service tax remains in suspense because the government is yet to issue a notification.
The second damaging proposal is to allow the fiscal deficit to balloon to 3.9 percent of gross domestic product instead of restricting it to 3.6 percent as targeted by the previous government. The finance minister seems to have thrown fiscal rectitude to the winds and has, perhaps unwittingly, endorsed the waste and redundancy that are hallmarks of the bureaucracy. It entails higher government borrowing that will crowd out the private sector investment proposals — a mix of equity and crucial debt component.
Third, the assumptions trumpeted in his speech are at best fantastic. The notion that economic growth will exceed eight percent next year is simply outlandish. So is the minister’s assertion that the global economic situation has turned adverse. On the contrary, as former prime minister Manmohan Singh pointed out, external factors are favourable for India to chart a high-growth orbit once again. The global economy is steadily improving led by the US and Germany and assisted by a stable China. The hurdles are all internal and if this government was serious, the budget could have focused on addressing them. Instead, the finance minister’s speech seems to have been caught between hype and bureaucratic tinkering, a sure sign of imminent policy paralysis.
(Rajiv Desai is president of Comma Consulting and a well-known Delhi-based columnist)