Budget 2018 Opinion

A Remnant of our Socialist Past

The budget has morphed from an instrument of command and control to a rent-seeking and vote-gathering circus.

Last year an American colleague visiting India was surprised at the viewership of the budget speech. He was amazed that Indians, as a group, were so interested in economic policy. And regular folks, not just policy wonks, tuned in to carefully parse through each word the Finance Minister uttered. What a wonderful description of India and Indians.

Alas, the reality is much more depressing. The average Indian is no policy wonk. In a more civilized world, she would be going about her day, at work, or with her family, or immersed in art and culture, or sending forwards on Whatsapp. Yet she watches the budget, because the finance minister will tell her if she needs to pay for an LPG gas connection or if she is eligible for the kerosene subsidy. Or if she is affected by the hike in the price of petrol and diesel. Or the extent of subsidy provided to her farm or cottage enterprise. Or if there will be new healthcare centers in her state.

This was a creation, and is now a remnant, of India’s socialist past. In a command-and-control economy, with centrally set price and quantity controls, it was crucial to know what the government controlled in any given year. During my teenage years, with rising oil prices, there used to be a long line at the petrol stations the day before the budget, filled with anxious consumers attempting to gas up in anticipation of a price hike for petrol in the budget speech. Only in a socialist society would there be a need for the common man to watch the budget speech, not to understand macroeconomic allocation but his household budget allocation. To drive or not to drive a petrol-fueled car. To plant or not to plant the seed backed by minimum support prices. To burn free kerosene or find wood burning stoves. To pay loans or default and hope for loan waivers.

The budget speech gets the eyeballs because the Indian state extensively stifles and controls economic choices of individuals. And they need to know which part of their lives are going to be dramatically altered with a few lines uttered by the finance minister.

But that was socialist India. In post-liberalization India, the budget has devolved into a rent-seeking and vote-gathering circus. There is now a vast gap between what the Indian budget is and what a budget speech ought to be. This is unfortunate, because the budget is no trivial matter.

The budget is one of the most important responsibilities of the state. It sets out the fiscal and monetary policy of the union government. The speech is not supposed to be a mere gesture. The executive, represented by the finance minister, reports to Parliament the government’s plan for allocating resources. First, the distribution of resources across different sectors. And second, the allocation of resources between the present and the future. Legislators have a responsibility to arbitrate between the winners and losers from a fiscal measure. Legislators must ensure that the executive doesn’t pass on the burdens of our current fiscal spending to the future generations. The accountability of the executive to Parliament should ideally enable fiscal discipline and keep deficits under control. At least this is what economists will tell you that a budget speech and finance speech should be about in a civilized society. And in such a civilized society, regular folks should have no more than a passing interest in the appropriation of resources to different sectors, and go about their day without much thought given to the matter. Policy experts, on the other hand, should hang on to every word, and analyze every detail of the Finance Minister’s speech.

India is very far from having a civilized fiscal discourse. The budget speech is a spectacle – meant to surprise, amaze, placate, and ensure repeat customers. It’s a platform to signal the broad government agenda in terms of the most preferred groups (in this budget it was the rural citizens) and sub-groups (farmers in particular). It placates the previously offended (see no farther than the results of the Gujarat elections). It offers freebies to swing voters and donors. It announces big headline-grabbing policy agendas (in this budget it was the healthcare rollout) that would be most popular with the voters. There is very little discussion of the actual allocation of fiscal resources.

Consider the announcement on healthcare. Arun Jaitley announced “a flagship National Health Protection Scheme to cover over 10 crore poor and vulnerable families (approximately 50 crore beneficiaries) providing coverage up to 5 lakh rupees per family per year for secondary and tertiary care hospitalization. This will be the world’s largest government funded health care programme. Adequate funds will be provided for smooth implementation of this programme.”

It could prove to be one of the biggest budgetary line items in the future due to the nature of the entitlement – and yet there was no indication of the amount set aside for this policy.

Indranil Mukhopadhyay suggests that the premiums to provide a cover to 50 crore beneficiaries alone would amount to Rs 1.2 lakh crore. This doesn’t include the costs of administering the scheme or setting up the required health infrastructure for the increased demand. And yet, no indication or explanation was provided for the actual budget set aside for this potentially huge entitlement expenditure far into the future. Little detail can be found on the Health Ministry’s website. Absolutely no analysis can be conducted on a major policy shift, because policy analysts don’t know what they are analyzing.

Though the finance minister didn’t give us the budgetary details, he did make the announcement in both Hindi and English, to reach the most ears, and potentially swing the votes of the millions of disenfranchised Indians who struggle with access to the most basic healthcare needs. And it got the requisite praise from the common man and media. So there we have it. A budget speech where everything is discussed except the actual allocation of funds for the most significant policy change.

I hope for a day in the future when the government controls so little of every economic decision that the budget is just another day. Relegated to 9 PM news and boring opinion pages the following morning. And Indians just barely register the finance minister’s speech and go about their priorities through the day in marvelous oblivion. Mainly because the Finance Minister drones on about budgetary allocations and tax rates and interest rates without announcing freebies and pandering the gallery. And they can trust legislators, the media, and policy wonks to scrutinize every detail.

I am not holding my breath.

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About the author

Shruti Rajagopalan

Shruti Rajagopalan is an Assistant Professor in Economics at Purchase College, State University of New York, and Fellow at the Classical Liberal Institute, New York University Law School.