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A Gift Horse? Say ‘Ahhh’

Do brown briefcase sops help outweigh the rest of the baggage?

A Gift Horse? Say ‘Ahhh’
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-0001-11-30T00:00:00+0553

This is a pre-election budget with a difference. It is not the one right before the country goes to once-in-five-year polls in 2014, but sure feels like one. In fact, given the mess the UPA finds itself in—a crisis of confidence, little money to throw at problems, and riotous coalition partners—it probably needs a couple of poll-friendly budgets to run a serious chance of being re-elected. Or so goes conventional wisdom. Is there after all a magic formula that finance ministers can take out of their brown budget briefcases to woo the electorate?

A look at pre-election budgets over the past decade-and-a-half doesn’t throw up a clear answer. A typical pre-election budget would reduce taxes and increase social sector spending—as the UPA’s first finance minister P. Chidambaram did in Budget 2008, or NDA finance minister Jaswant Singh did in Budget 2003. Alas, only one of the two governments was voted back. Did Chidambaram’s Rs 60,000-crore farm loan waiver swing it for the UPA at hinterland poll booths?

Even here—not surprisingly—opinion is divided. “If the government keeps election results, past or future, in mind when preparing a budget, one can only assume that it’ll try and uplift the poor through enhanced social schemes,” acknowledges K.T. Chacko, director, Indian Institute of Foreign Trade. In the last two pre-election budgets, record spending plans were laid out, with the UPA-I assuring another Rs 60,000 crore for Bharat Nirman and company in 2008. The NDA, too, had signed off Rs 60,000 crore-plus for its pet projects—new roads, modern airports, seaports and so on—as a way to create skilled jobs and enhance savings.

Former economic affairs secretary and PIL activist Dr E.A.S. Sarma and others say budgets don’t predict outcomes at polls that follow immediately thereafter—because the bigger picture does not elude voters, who may accept sops (like a cash handout), but then vote for candidates they secretly back. Even so, it’s apparent that food security is the UPA’s plank for the coming election. “It’s true the government can’t take many chances there—food security is, after all, the only pro-poor measure on UPA-II’s anvil,” says Subrat Das, director of the Centre for Budget, Governance and Accountability.

“A problem with ‘populist’ budgets is forgetting to make changes in governance. The big picture does not elude voters.”
Dr E.A.S. Sarma, Former economic affairs secretary

If there’s a silver lining for the UPA-II, it’s that expectations have been abysmal in the past too. In 2008, businessmen (and by extension salaried professionals) were hit by the downturn and got excise sops worth Rs 1 lakh-crore—a stimulus package to go with pay commission arrears, which were a booster shot to the auto industry. There was also higher allocation for the rural employment scheme. In short, it was a please-all year in which steps to control spending were talked about, with little done.

The UPA may have won that one, but recent history clearly shows us that so-called ‘populist’ moves don’t necessarily result in votes. The Narasimha Rao-led Congress government ran out of luck at the polling booth in 1996, despite then-FM Manmohan Singh’s reformist budget, which threw in a food subsidy to match a fertiliser subsidy, higher I-T exemptions and industrial tax holidays that we are still struggling to undo.

The UPA’s recent electoral losses in the elections in five states will also determine how “populist” the budget ends up being. George Cheriyan, executive director, CUTS, a consumer rights organisation, feels expectations from the budget this year were definitely higher before the results of the latest assembly elections became known. “Now, the focus will be more on schemes et cetera, keeping in mind the UPA has (only) two more years to go,” he says.

The trouble with ‘big-ticket’ budgets, which tend to pick between pro-poor measures and deregulation and liberalisation of industry, is that many crucial policy decisions fall behind. Administrative reforms or phasing out of subsidies and exemptions fall into the background in headline-grabbing budgets.

Even among so-called “reformist” pre-election budgets, there are huge differences in the way the voter reacts to them. For instance, former FM Yashwant Sinha’s budget in 1998, which promised to start dismantling the ‘Inspector Raj’—and gave many sops to industry—came right before the NDA government successfully faced voters for a second term. Yet, when former finance minister Jaswant Singh, in Budget 2003, tried to clear up the cluttered excise rates, approved of entirely rejigging the tax administration, and gave yet another Rs 60,000 crore to infrastructure, a seemingly perplexing poll defeat followed.

Confusing? It’s quite simple, actually. Prof Anil Gupta of IIM-Ahmedabad says if vote-seeking sops worked, the Congress would have been in power in UP and Punjab. “Fact is, people want long-term and lasting change as much as they want immediate action on crucial issues like employment and food security,” he says. The first sign, then, of a voter-friendly budget is if the government opens its purse strings for the social sector. Whether the Indian voter bites at this is another matter, thankfully.

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