Budget – Modi Govt reaping UPA harvest

A newspaper analysis of the first month’s performance of Modi government afew days ago cooed that growth was already looking up and inflation cooling down. Without openly saying so, it seemed to be subliminally suggesting that the election slogan promise of “aché din or good days” is already dawning upon us. Exports rose 10.2% in June from a year ago,and industrial production rose to a 19-month high of 4.7% in May while car sales rose at their fastest pace in 10 months in June, clearly indicating that the consumer was more confident of the new government shaping recovery, the Economic Times said echoing government claims. By now of course, the new government is two months old and the upwardtrnd of exports and industrial growth may well cntinue. However, the paper failed to remind itself or its readers that the achievements of the first month, first quarter , first half-year or even a full year are the result of work done during the previous year or more and not the result of waving of some magic wand by new occupants of the seats of power. Clearly the Modi government is beginning to reap the harvest of the outgoing Congress-led UPA government’s good work, and long may it go on reaping that harvest. After all it’s all for the common good despite the BJP’s pre-election tirade of denigrating everything done by the UPA. It would do BJP no harm if it could give the Congress “devil” its due. Nor would it have harmed BJP image if Finance Minister Arun Jaitley’s Budget speech slogan of Sab ka haath, sab ka vikas ( All hands for everyone’s development) had acknowledged the role of UPA’s Haath (Hand) in the country’s development during the previous ten years. Projects like the bullet train from Ahmedabad to Bombay had already been negotiated with Japan by the UPA government. Pilgrim trains to Katra for Vaishno Devi shrine in Kashmir or to Char Dham in Uttrakhand had been readied by the UPA. The BJP has only waved the hari jhandi or green signal ! Promising housing for all by 2022 and urban and rural sanitation under its Swatch Bharat campaign and cleaning the sacred Ganges river are all welcome gestures that must face future delivery tests. So are a myriad other plans mentioned in the Budget but not clearly spelled out in cold detail. Proof of the pudding lies in delivery and that is a long way off before any success can be forecast. So far the early measures of the new government which could start kicking in soon are small sweeteners for the lower middle classes who will see their income tax exemption threshold raised from Rs 2 lakhs to 2.5 lakhs while senior citizens’ limit will go up to Rs 3 lakhs from Rs 2.5 lakhs. A sweetener indeed for those who have this much money at command , yet it must be acknowledged that the vast majority of rural and urban people don't have even this modest amount and will continue to be left out of this charmed circle. What is worrying the vast majority of people is the new government’s veiled threat to cut subsidies to universal programmes like the Food Security Act and the MGNAREGA ( Mahatma Gandhi rural employment guarantee Act) which have gone a long way in reducing rural poverty over the last ten years of the previous government. The food security and employment acts have been hailed as the world's largest welfare package amounting to nearly $20 billion a year and it would be a shame and an egregious folly to undermine such vital programmes. Any undercutting of these life sustenance safeguards which ensure the poor daily food at Rs 2 per kg of rice and Rs 3 per kg of wheat, besides guaranteeing 100 to 150 days of employment , will seriously negate India’s claim to being world’s largest democracy. For a democracy shorn of some minimum wealth distribution and equality would be nothing but a sham. Finance minister Jaitley’s utterance in his Budget is more than a cause for concern when he says: “We have reached a situation where subsidy burden is too high. Subsidies at times can become unquantifiable amount given to unidentified people. It is this situation which we need to correct.” The outgoing UPA government’s welfare investment was neither unquantified nor unidentified. It may have been an electoral necessity for the BJP to run down everything done by UPA but calling food security and employment measures as wasteful was nothing short of scandalous and downright untruthful. Fortunately the BJP after coming power has begun to moderate its rhetoric and the country expects it to strengthen and not weaken the twin foundations of economic democracy bequeathed to it by the UPA government. Another area of concern where the BJP government needs to tread with caution is the so-called public-private –partnership or PPP development model. The government’s headlong jump for Foreign Direct Investment to speed up growth and development has been hailed in certain quarters. The Budget announcement to raise FDI limit from 26 per cent to 49 per cent in defence and insurance sectors has naturally pleased the foreign and national business groups. But the underlying security concerns in the defence sector cannot be underestimated. Even in non-defence sectors the FDI’s strong presence can have a destabilising impact on national economy. The native private players’ ability to resist temptations offered by the foreign investors could be put under severe pressure to the point of capitulation. After all the foreign investor’s driving motive is to make profit and increase his country’s influence in the recipient country’s economy and polity. Already there are hints the BJP government is planning to scrap 30 per cent domestic sourcing condition for FDI in single brand retail sector, reversing the party’s pre-election policy indications. The FDI is a double edged sword . Its unbridled scope is known to have promoted neocolonialism as witnessed in several parts of the world. Twenty- six percent is easily controllable; 49 per cent can lead to the edge of interventionist territory. Another area of concern where the BJP government needs to tread with caution is the internal public-private –partnership or PPP development model. As with FDI, the home grown private investor is also driven by profit motive. The experience so far has been rather less than inspirational. Quite the contrary. The experience of Britain, the country which led with its Thatcherite model, has shown that the confidence in the PPP strategy has been misplaced. There is widespread talkof re-nationalising British railways. Privatisation is no longer thought to be the panacea or cure of all shortcomings. The PPP model instead has become the vehicle of private profit at public cost. It is common knowledge that the so-alled private investment is nothing like what it is advertised to be. Private investment funds are in fact no more than easy loans from public banks. The loans are then trotted out as private funds to which more money is added directly from the government . Once the partnership business starts, very often costs escalate beyond control, forcing the public sector to rescue the operations from collapse. The Indian experience is no different . Perhaps worse. Very often the so-called private investor is also the bank loan defaulter. The huge NPAs or non-performing assets of Indian banks are an ever bloating testament to that manipulation by vast section of private investors. The new government should at least make sure that no private investor in a PPP venture is a bank loan defaulter. Ideally we should put more energy and money into making the non-profit public sector more efficient and workable with strict vigilance and less patronage. Time to tread softly, shed slogans, and work for results. ............................................................................................................................................................. ............................................................................................................................