TEN BUDGETS: NDA VS UPA

Identical tenures of the two regimes reflect continuity with change, and yet they differ radically in the political economy each pursued. EPISODE # 109

Dear Reader,

A very Happy Monday to you.

In a week from today, Finance Minister Nirmala Sitharaman will rise to present her fifth Union Budget. She will be the first woman to serve out a full tenure as the Finance Minister. Indeed this breaks the glass ceiling yet again; but the rarity of the moment is also a reminder that India has a long way to go in enabling gender parity.

The only other woman FM was Indira Gandhi, who held the post as an additional charge while serving as the Prime Minister of the country.

Significantly, on 1 February the Bharatiya Janata Party (BJP)-led National Democratic Alliance (NDA) will have logged 10 consecutive Budgets—similar to their predecessor, the Congress-led United Progressive Alliance (UPA).

Indeed, this milestone is a perfect moment to compare the record in Budget making of the two otherwise bitterly opposed regimes. So this week I attempt a broad comparison and was pleasantly surprised that there is lots of continuity between the two tenures. Do read and share your feedback.

The cover picture this week, sourced from Press Information Bureau, is of FM Sitharaman with her team, just ahead of presenting last year’s Budget.

A big shoutout to Shiv, Sangeeta, Aashish, Monica, Kapil, Gautam, Premasundaran and Vandana for your informed responses, kind appreciation and amplification of last week’s column. Once again, grateful for the conversation initiated by readers. Gratitude also to all those who responded on Twitter and Linkedin. Reader participation and amplification is key to growing this newsletter community. And, many thanks to readers who hit the like button😊

---

CONTINUITY WITH CHANGE

On the face of it, the Bharatiya Janata Party (BJP)-led National Democratic Alliance (NDA) and the Congress-led United Progressive Alliance (UPA) are bitter political rivals and ideological opposites.

Hence, one should logically expect that each will impart their own style quotient when it comes to designing the union budget. Surprisingly, there is more continuity in policy than either of these two regimes will let on.

At the same time they differ fundamentally in the political economy each regime has pursued once in power. In short, while both employ the same means, the end that each desires is fundamentally different.

Reform Mindset

The Congress party can justifiably claim to be the original author of economic reforms in India—though on their ongoing foot-march across the country they may be claiming the contrary, reflecting the political schizophrenia that afflicts parties when they are out of power.

It is not just because of the big burst of reforms carried out in 1991 by the Congress government led by Prime Minister Narasimha Rao. The impetus to change came much earlier, though most commentators erroneously claim that reforms began with the Rao regime.

The ideological flip flop—from a socialist mindset to a more market friendly approach—was seeded subtly by Indira Gandhi, when she returned to power in 1980. I have written about this during my stint at the Mint newspaper.

While I would recommend the curious to go through the entire piece by clicking the link embedded above, I am sharing relevant extracts:

“The context (for economic reforms) had been set in 1979 with the onset of an external sector crisis triggered after the second oil shock. By the time (Indira) Gandhi regained power, the situation was rapidly deteriorating.

There was no option other than approaching the International Monetary Fund (IMF) for assistance. Eventually, a loan came through—around $6 billion, at that time the largest to any developing country, to be disbursed over a three-year period in three tranches—in November 1981.

To mitigate the political damage of depending on the IMF, in which the then unfriendly US wielded unchallenged clout, Gandhi did two things:

One, her government unveiled the 6th Plan (1980-85) that essentially promised to undertake a series of reform measures designed to improve the economy’s competitiveness—which meant fiscal reforms, revamp of the public sector undertakings, reductions in import duties and delicensing of domestic industry (wherein the government determined and allocated production capacities in each sector and company).

Second, negotiators in Gandhi’s government back-ended the associated conditionalities towards the end of the IMF loan programme.

Gandhi was able to defend her government’s actions by arguing that the IMF loan conditions specified exactly what the country had sought to do—as laid down in the 6th Plan. In any case, the conditions were to kick in only towards the end of the loan programme.

By that time, the economy recovered and her government decided to exit the loan programme in 1984 and in the process also avoided implementing an IMF reform programme. Gandhi was shrewd enough to realize that the country was politically not ready for such a rapid structural transformation. (Or at least the Congress party was not willing to stake its social capital to inspire this change.)

Though the programme ceased to bind India, the process of reform had already been initiated. Not surprisingly, therefore, if you look back, the biggest reform initiatives came immediately after—when her son Rajiv Gandhi took over as PM .

Revamp of the public sector was kicked off by spinning off the telecom circles in Mumbai and Delhi into separate corporate entities under Mahanagar Telephone Nigam Ltd in 1987; the Long Term Fiscal Policy, 1984, which is the basis of all tax and fiscal reform; and selective delicensing of industry.

And, (for the record) it was Yashwant Sinha in his aborted 1990 budget who first formally referred to public sector disinvestment.”

UPA vs NDA

Fast forward to the the UPA era and you only see more reforms—though the ideological accent was about tackling poverty through entitlement. However the style quotient continued to be one of reforms by stealth—a fallout of which was to mask the fiscal arithmetic by taking items off the books.

The NDA when it entered government in 2014 inherited a macroeconomic mess—inflation was rampant, growth was slowing and worse the fiscal deficit was running riot.

However on the upside, the UPA had left behind a terrific legacy in Aadhaar—the 12 digit unique identity issued to all residents of India—and its initial applications, including the idea of Direct Benefits Transfer (DBT) and of the India (Technology) Stack.

The new regime was quick to grab and run with the good things, especially Aadhaar, and thereby establishing continuity with change. The NDA soon discovered that the successful application of Aadhaar to do public good could also enable an ideological pivot from entitlement to empowerment—teaching people how to fish, rather than handing them the fish.

Simultaneously it pushed the idea of financial inclusion by getting banks to offer a no-frills account—Jandhan. Remember that in 2010, 430 million Indians did not own a bank account and till recently 571 million Indians had never availed of any form of formal credit.

Combined with Aadhaar and the mobile phone the Jandhan enabled the government to successfully triangulate the beneficiary, providing an economic GPS as it were, to target welfare spending—savings on account of this cumulatively add upto nearly Rs 3 lakh crore.

It went a step further to reinvent the fight against poverty by targeting the basic deprivations—health, education and standard of living—that cause poverty. This manifested in the big push for electricity, housing, cooking gas, toilets and drinking water for all.

Not surprisingly the decline in poverty levels, visible in the first decade of this Millennium, accelerated. Something that was chronicled recently by the United Nations Development Programme.

Re-sharing the newsletter I had published in this context.

ESCAPING POVERTY

Alongside, the applications of the India Stack democratised access and began to disrupt payments, enabled FastTag (eliminating holdups/delays at tolls), credit and ecommerce. Together with structural reforms—like with the introduction of the Goods and Services Tax, ease of doing business and cut in corporate tax rates—the formalisation of the economy crossed a tipping point.

Benefits of change began to accrue to many more, irrespective of economic class. Overnight there were more people inside the formal economy rather than being outside looking in—creating an important cohort of stakeholders.

The ability to deploy a home grown tech stack for doing public good at scale (one billion plus) had a huge upside: It created an unprecedented sense of self-belief.

This ‘yes we can’ attitude manifested in the fightback against the covid-19 pandemic; India was able to indigenously manufacture the vaccine and undertake the seamless rollout of 2 billion jabs—a global record—using a digital backbone created from the tech stack.

What this also did for the NDA was that it allowed the regime to build fresh social capital and repair the trust quotient with the people, who are also the electorate. Undoubtedly, it created the political space for the NDA. Exactly how it has walked the tightrope of its seemingly contradictory slogan: “Pro-poor, Pro-business”.

In the final analysis it is clear then that indeed there is amazing continuity in economic thought between the UPA and the NDA. While the former hedged on undertaking dramatic reforms, preferring not to rock the boat as it were, the NDA has made disruption its dharma.

All eyes now on FM Sitharaman to see how the NDA closes out its ten years of budget making.

---

Recommended Viewing

Sharing the latest post of Capital Calculus on StratNews Global.

This time I put the spotlight on India’s credit democracy project: The Open Credit Enablement Network (OCEN).

Just like Unified Payments Interface or UPI disrupted the payments space by democratising access, OCEN is threatening to do the same with respect to sachet credit—succour to those at the bottom of the pyramid.

Part of the ‘India Stack’ story, OCEN is still a work in progress. But its potential is staggering. It can, once it us up and running at full steam, serve $400 billion in credit needs. No small sum this, especially given that we are talking about sachet loans.

Guiding us through this conversation was Hrushikesh Mehta, co-founder and chief evangelist at OCEN. Do watch.

Sharing the link below.

Till we meet again next week, stay safe.