A Pre-Poll Budget
The backdrop for this year's Budget is unique: A comfortable macroeconomy, without the predictable pre-poll populist rhetoric. EPISODE #161
Dear Reader,
A very happy Monday and a 75th Republic Day to you.
Later this week Finance Minister Nirmala Sitharaman will present the final budget in this tenure of the National Democratic Alliance (NDA). Since the general election is due in little over a month, this will be a vote-on-account.
Unlike in the run-up to the vote-on-account in 2019, this time we are not witnessing a spree of pre-poll populist promises. Five years ago I recall a rash of announcements, including a reduction in GST rates, farm loan waivers and so on.
In fact, it put the incumbent NDA on the defensive. The obvious question is what has changed and why? This week I explore this theme.
The cover picture is from the 75th Republic Day parade. This year the government showcased Nari Shakti (Women’s power). The picture is sourced from the PM’s website.
A big shoutout to Balesh, Rajit, Ranjini, Premasundaran, and Gautam for your informed responses, kind appreciation and amplification of last week’s column. Once again, grateful for the conversation initiated by all you readers. Gratitude also to all those who responded on Twitter and Linkedin.
Unfortunately, Twitter has disabled amplification of Substack links—perils of social media monopolies operating in a walled garden framework. I would 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😊.
A Dream Backdrop
No finance minister in recent memory has approached a union budget, leave alone a pre-election effort from an incumbent facing a two-term anti-incumbency, in such relatively stable macroeconomic circumstances.
Inflation has peaked and has begun to decelerate from the high of 7.8% recorded in the post-Ukraine conflict phase; economic growth dramatically rebounded and is projected to grow at a very impressive 7.3% in 2023-24—in fact, some analysts believe India has struck out on a new trend rate of growth of 7%; in turn, the acceleration in growth is ensuring revenue growth, strengthening the ongoing fiscal consolidation; the country’s foreign currency reserves are comfortable and the Indian rupee seems to have seen off the worst.
The chapter on the ‘State of the Economy’ published in the latest bulletin issued by the Reserve Bank of India (RBI) for January 2024 summed up the prevailing economic circumstances best.
Saying that the “genie of inflation is being bottled”, the central bank said:
“The Indian economy recorded stronger than expected growth in 2023-24, underpinned by a shift from consumption to investment. The government’s thrust on capex is starting to crowd-in private investment.”
Some would say that FM Nirmala Sitharaman proved to be lucky. Frankly, I would argue that credit should be given where it is due.
The Bhartiya Janata Party (BJP)-led National Democratic Alliance negotiated what was probably the worst ever economic circumstance faced by India—the back-to-back crisis beginning with the covid-19 pandemic that continue to devastate the world—with aplomb.
To a large extent this was made possible by North Block putting its head together with the RBI to work out the strategy to first mitigate the crisis and then nudge the economy back to normalcy. And for this all credit to FM Sitharaman and RBI Governor Shaktikanta Das.
Sounds of Silence
If the macroeconomic backdrop is a pleasant surprise, even more delightful is the missing populist rhetoric in the run-up to the pre-election budget. We saw a lots of populist promises in the just concluded round of state assembly elections. But nothing thereafter.
This is contrast to the run-up to the pre-poll budget in 2019. On that occasion, the opposition was drumming up rural distress—a genuine issue after international crop prices collapsed in the aftermath of the global crisis of 2008, combined with a string of bad monsoons—to argue for a farm loan waiver.
Several opposition-ruled states in fact went ahead and made promises of their own. The BJP too offered it at the last minute in the election for the Uttar Pradesh state assembly in 2017.
Sharing some news headlines from that time.
In fact, the defeat of the BJP in the assembly elections of Chhattisgarh, Madhya Pradesh and Rajasthan was attributed to farm angst. The narrative put pressure on the incumbent BJP-led NDA, resulting in sops in the 2019 interim Union Budget.
The NDA departed from the norm and used the vote-on-account to announce a monthly stipend for all farmers under PM-Kisan and income tax concessions for the middle class in the lower income bracket.
This policy action did dent the opposition’s narrative. How much, is difficult to guess. In politics rarely does one single initiative determine the outcome. That is what makes it fascinating and at the same time frustrating for those competing for political power. Regardless, the NDA returned to power with a bigger majority.
What is baffling this year is that there is no one large narrative dominating the mind space. In 2014 it was the catchy slogan of “Acche Din” coined by the BJP to take on the two-term Congress-led United Progressive Alliance (UPA). In 2019, the big narrative was farm distress and shrill allegations of corruption in the Rafale deal levelled by the Congress—”Chowkidar Chor hai”.
This is surprising given that large parts of the Indian economy are yet to recover from the unprecedented back-to-back economic shocks beginning with the covid-19 pandemic. Yes, overall India has done extremely well in bouncing back. But, lots more needs to be done. Yet, the opposition has not come up with an alternative narrative that is both credible and catchy.
This is amazing given that the NDA is facing a two-term anti-incumbency. I would say that this reflects the political ascendancy of the NDA under PM Narendra Modi. Last week’s Capital Calculus on StratNews Global (shared below) hosted Diva Jain, who spelt out plausible reasons.
My guess is that on 1 February, the NDA will not miss out on this last opportunity to address the nation ahead of the general election. FM Sitharaman is likely to throw in some goodies—probably for the aspirational middle class and farmers—while presenting what would be an enviable economic report card.
All eyes then on the FM.
Recommended Viewing/Reading
Sharing the latest post of Capital Calculus on StratNews Global.
Last Monday, Prime Minister Narendra Modi announced the union government’s plan to provide roof top solar for one crore households. A few weeks earlier, PM Modi had visited the home of Mira Majhi, the 10th crore beneficiary of the union government’s subsidised cooking gas scheme.
Together they put the spotlight on the remarkable social welfare achievements of the incumbent National Democratic Alliance (NDA).
By ensuring targeting of welfare the NDA has managed to empower 500 million Indians with the basics—making them part of the formal economy. In turn, this is rewriting the political economy of the country.
To unpack this makeover I spoke to Diva Jain, a policy analyst and an astute observer of the Indian economy.
Sharing the link below. Do watch and share your thoughts.
Till we meet again next week, stay safe.
Dear Anil
If I remember correctly, you had mentioned about this budget on previous occasions as well. Finally the time has come for the NDA to present it's last budget of the second term. This is one week when everyone is guessing about what is in store for them in the budget.
In India's case there is no doubt that Fortune favours the brave. How else can one explain our impressive growth rate while most of the other countries are still reeling under recession? Our country first faced the Covid challenge and in our case it was more challenging because of the sheer population. How does one handle the highly potent and mysterious virus which demands social distancing in a country with the maximum density of population? Most foreign journals had declared a very high death rate in India. Not only our people but even the economy pulled through. Then began the Ukraine conflict but again we showed the way to the rest of the world. It now seems like whatever could go wrong did go wrong. Then how are we projecting a path breaking 7.3% growth rate?
Now we seem to have reached a state of calmness and prosperity after the tumultuous storms. This year's budget may create a few ripples but definitely no major waves. No one would want to rock a boat which is sailing so smoothly.
The "Shining India" slogan prior to the 2004 elections, was followed by the shock results in the Parliamentary elections. BJP learnt the lesson, that what matters is the rural vote, without which it was not possible to win elections at the national level. The minority vote bank, has been adequately dwarfed by the surge in Hindu unity and even some loose ends like Rajasthan and Chattisgarh have now been knotted. The latest coup in Bihar has made the outcome more certain and it is only the margin of victory, that remains to be seen. However, although the free basic rations to BPL families continue, the government has allowed prices of food items to go up, thereby keeping the farmers in a happier state of mind. The MSP for certain agricultural produce has been generous and proactive measures for price control have been taken, by stopping/restriction of export of food items at certain times, especially non Basmati rice and onions at certain times. Let us keep our fingers crossed for some relief to the middle income groups, in the budget this week. An interesting article. Thank you Anil 😊