June 23, 2021
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The Budget Brouhaha

The yearly ritual of huddling around the budget - the drama, the tension, the suspense, the agony of an exemption revoked, the joy of a new subsidy given - makes for good theatre, but is it good economics?

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The Budget Brouhaha

Like most in the country, I found the drama unfolding on television riveting. The Finance Minister in his customary crisp white outfit was reading the budget, while those of us watching awaited with a hush between his every sentence. The watching had a feel of a community event; we were effectively seeking communion in the charting of the economic policy of the country.

We could have well been watching a cricket match. The hush that preceded every policy pronouncement could have been from the suspense of watching Warne bowl to Dravid - would the master bowler outfox the master batsman? Then a cheer! Dravid has scored a boundary; the FM has scored a persuasive policy point.

The yearly ritual of huddling around the budget - the drama, the tension, the suspense, the agony of an exemption revoked, the joy of a new subsidy given - makes for good theatre, but is it good economics?

The joke goes that economists are like accountants, only without the personality. While this joke takes a big swipe at both professions, the lacklustre nature of these occupations might actually be a boon. Economics is about people - lots of them - markets, policies, and the very fabric of societies. These are too important to be left to individual personalities.

For that's what the budget exercise ultimately becomes - the separation of policy considerations from those of the personalities involved becomes tricky. The economy is mired in uncertainty before the budget is revealed, and a whole industry has sprung up to divine the intentions of policymakers and analyze their idiosyncrasies and the potential implications of their actions.

What's on the FM's mind? He has a degree from the Harvard Business School; surely he won't short-change businesses on account of populist policies? Should I put my expansion plans on hold until the budget is released? Should I buy that car now or wait? These are questions that naturally arise in the minds of many individuals and businesses.

India can benefit by jettisoning the yearly tinkering of policies through the budget process - a vestige of a planned economy of yesteryears - in favour of sound, stable, and clearly announced long-term policies. Yearly budgets would of course be needed, but they need not be the policy altering exercises they currently are.

But what about the monsoon, you might ask. Don't the vagaries of the weather require a charismatic hand to tweak the knobs of the economic machine? Even here, longer-term policies, such as the development of an extensive irrigational infrastructure, and development of financial markets that would allow diversification of risks and their sharing in the global markets, are likely to have a longer lasting impact than the short-term policies that aim at stabilization.

The more the economy is on autopilot, the better it is for decision making by individuals and businesses. Companies should spend their time working on the next generation of software or automobiles, without having to worry about the next googly the budget is going to send their way.

India did not take off in the last two decades by having greater government orchestration, but by having less. The logical end to this process would be for the budget to be passed and noticed by hardly anyone, because year-to-year policy changes wrought by the budget would be minimal. The stability inherent in this process would automatically attract foreign and domestic investment; no special incentives or tax breaks would be needed. Let us not forget that markets love certainty above all else.

And when we need excitement, we can still find it in a Sehwag hitting a six, or a Kumble knocking down the batsman's stumps, not in the FM presenting the budget.

Professor Krishna Kumar teaches Global Economics this term at the Indian School of Business, Hyderabad. He is from the Marshall School of Business at the University of Southern California, Los Angeles, where he teaches macroeconomics.

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