A Feel Good Budget?

The overhang of social and economic pain points, together with the electoral setback is likely to influence the Budget playbook of NDA 3.0. EPISODE #185

Dear Reader,

A very happy Monday to you.

In little over a week from now, Finance Minister Nirmala Sitharaman will rise to present her seventh and the first union budget in the third-term of the National Democratic Alliance (NDA). What will it be like?

Prior to 4 June, expectations were that economic priorities would guide the FM. With the Bharatiya Janata Party (BJP) witnessing an erosion in its seats, may force the NDA to recalibrate its original script.

I am betting that this will be a feel-good Budget—that will address the pain points of key cohorts, including the middle class. At the same time, it is likely to lay down the blueprint transforming India into a developed country in 2047.

The underlying idea is very simple: For the NDA to define a new narrative, regain its mojo and wrest back the political momentum.

In short, it will include dollops of pragmatism, largely inspired by the setback in the general election. But it will not be short on ambition.

The cover picture is of the iconic Eiffel Tower in Paris, less than a fortnight ahead of the start of the Olympics—the global sports fest. This compelling photograph is taken by Sumod Soman. Thank you Sumod.

Happy reading.

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Budget Tea Leaves

Regardless of the official spin, it is clear that the electoral outcome of the 18th general election, has disturbed the rhythm of the Bharatiya Janata Party (BJP)-led National Democratic Alliance (NDA).

Previously, the NDA was operating like a well-oiled engine. And why not? Not only did the NDA win two consecutive general elections, the BJP led from the front by winning a majority of its own in both elections and replaced the Congress as the principal pole of Indian politics—a dramatic makeover for a party, which for most part of the previous six decades occupied the opposition benches.

For a third consecutive time, the NDA emerged a comfortable winner in this general election. But there is a catch. The BJP lost its majority. And this was clearly not part of the script. More importantly it ceded some political space.

Consequently, the opposition, which for most of the last 10 years was flailing, seems to have acquired a chutzpah. Or is at least making a vociferous show of its additional numbers in the 18th Lok Sabha.

Both in 2014, and in 2019, they had similarly questioned the legitimacy of the NDA. The additional numbers in the Lok Sabha are lending it an extra voice, while the tactics remain the same.

On its part, a politically diminished NDA is hunkering down, especially by eschewing any dramatic flourishes and preferring the strategy of consolidation instead.

Given the electoral mandate, the BJP-led coalition is pivoting from what it wanted to do, to what it needs to do—to acknowledge the new electoral reality.

The obvious inference then is as to whether this loss of political momentum will influence the narrative of the first Union Budget of NDA 3.0. Will it be the platform for signalling a course correction?

So far, the NDA has sought to convey that it is business as usual, with a subtle tweak. The best inferences can be drawn from President Droupadi Murmu’s address to the first session of the 18th Lok Sabha and Prime Minister’s Narendra Modi’s reply to the motion on vote of thanks to the President in both Houses.

Both speeches reiterate the promise of continued economic reforms and pursuit of economic growth—reassuring foreign and domestic investors—but carefully emphasise its intent to eradicate poverty. The latter is a tacit acknowledgement of the electoral messaging from Middle and Rural India, where the BJP witnessed an erosion of seats.

In his reply to the motion of thanks in the Rajya Sabha, PM Modi said:

“The next five years will be a decisive battle against poverty. This period will witness the fight of the poor against poverty, and I believe that when the poor stand united and determined, their struggle will lead to success.

Therefore, these five years will be crucial in the fight against poverty, and I am confident that our country will emerge victorious. This confidence is based on the experiences and achievements of the last ten years.”

Stakeholder Economics

The NDA’s record in the last 10 years in office suggest that it pursued a strategy of supply-side economics, rather than demand-side (the hallmark of the previous regime of the Congress-led United Progressive Alliance). This meant creation of unprecedented capacity in infrastructure, digital economy, access to basics like banking, cooking gas, drinking water, electricity, housing and so on.

The obvious message from the general election is that the demand-side needs attention. Especially in the aftermath of the unprecedented back-to-back economic crisis that was triggered with the covid-19 pandemic. Overall, the Indian economy has bounced back, admirably at that.

But, large segments of the population are still struggling to cope with the aftermath. Which is probably why they are vulnerable to electoral inducements. This is unleashing a wave of competitive populism, with a growing accent on targeting the female voter—who, over the last three general elections, have emerged as a key electoral cohort.

Keep in mind that fiscal prudence in the last 10 years enabled the NDA to ensure reasonable macroeconomic stability despite extreme economic stress, especially those induced by global shocks. At the same time, macroeconomic stability coupled with key economic reforms and ramping up of the supply-side capacity, has left the government with an enviable war chest of fiscal resources.

Given this backdrop, it is possible that this Budget will address key stakeholders with different offerings. A feel good Budget as it were.

Consequently, there is likely to be multiple messaging. Not only will this strategy acknowledge the electoral message from the just concluded general election, it can potentially provide the desired political space for the NDA to reclaim its mojo and restore its narrative to fundamentally transform India into a developed economy by 2047.

For this it is vital that key stakeholders are taken on board. Broadly, I would categorise them as:

• Jittery domestic and foreign investors (apprehensive of any abrupt pivot away from fiscal prudence and pursuit of growth);

• Angry middle class (key contributor of tax revenues, yet under sustained economic duress and denied fiscal goodies in the last decade);

• Stressed rural India (struggling with rural distress, stagnant farm economy and growing instances of extreme weather; check out the conversation with Ashok Gulati shared below);

• Missing women (long neglected, but gradually emerging from the shadows and a key dynamic for the economy);

• Always hungry India Inc. (desperate for improved ease of doing business, especially given the growing complexity of the indirect tax regime and red tape.)

To be sure all of this is my assessment of the likely contours of NDA’s Budget playbook. We will know the details only next week when the finance minister rises to present her Budget on 23 July.

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Recommended Viewing/Reading

Sharing the latest post of Capital Calculus on StratNews Global.

The just concluded general election saw an erosion of seats for the incumbent Bharatiya Janata Party (BJP)-led National Democratic Alliance (NDA) in rural India. Experts identified farmer angst as a key reason.

The NDA seems to have taken note of this. In its third term it effected a leadership change in the agriculture ministry. Not only is Shivraj Singh Chauhan a seasoned politician—having served for over 16 years as the chief minister of Madhya Pradesh—he is also credited with the transformation of the state’s agriculture from deficit to surplus.

The big question then is whether the upcoming Union Budget will signal a course correction? Will it sow the seeds of the next agricultural revolution?

To answer this I spoke to Ashok Gulati, agricultural economist, and an earlier guest on this show. As always, Mr Gulati was brilliant. His insights are unmissable.

Do watch. Sharing the link below.

Till we meet again next week, stay safe.

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Thank You!

Finally, a big shoutout to Gautam, Balesh and Premasundaran for your informed responses, kind appreciation and amplification of last week’s column. Once again, grateful for the conversation initiated by all readers. Gratitude also to all those who responded on Twitter (X) and Linkedin. 

Unfortunately, Twitter has disabled amplification of Substack links—perils of social media monopolies operating in a walled garden framework. I will be grateful therefore if you could spread the word. Nothing to beat the word of mouth.

Reader participation and amplification is key to growing this newsletter community. And, many thanks to readers who hit the like button😊.