Budget drawn up after consultation within party

The fourth budget of Prime Minister Narendra Modi’s second government, due to be placed before Parliament today (February 1), will be studied with keen interest both at home and abroad to evaluate the steps the government proposes to take to speed up economic recovery.  

India was the world’s fastest growing large economy when Modi’s Bharatiya Janata Party came to power in 2014. Two early steps the government took without adequate forethought hurt the economy badly.

One was devaluation of high-denomination currency notes with a view to bringing out black money. It did not yield much hoarded wealth. It dislocated small and medium sectors of the economy.

The other was introduction of goods and services tax, a reform measure on which the previous government was advisedly moving slowly. It, too, hurt the small and medium sectors.

The economy was recovering from the impact of these steps when the Covid pandemic struck. State governments were taking measured steps to check its spread, in the light of local conditions. Suddenly the Centre stepped in and invoked the provisions of the National Disaster Management Act.

The Prime Minister, in an address to the nation, announced the imposition of a nationwide lockdown at four hours’ notice. Businesses shut, workers were rendered jobless and the economy   slowed down. When the financial year ended, official figures showed that the economy had contracted by about 22.5 per cent. This was the first time the economy had contracted since the early days of Independence.

The economy recorded a modest recovery thereafter. But it contracted again during the 2020-21 financial year. In the financial year 2021-22, which ends on March 31, GDP is estimated to register a grow rate of 9.2 per cent.

The Economic Report placed before Parliament on Monday forecast a growth of 8 to 8.5 per cent in the next financial year.

If these rates are achieved, India can have the satisfaction that its economy is moving forward again. However, the high figure of 9.2 per cent and 8.5 per cent must be viewed against the negative growth of 2020-21.

Five states, including Uttar Pradesh, are going to the polls from February 10.  The general expectation is that this will compel Finance Minister Nirmala Sitharaman to present a populist budget.

It is customary for the Minister to hold pre-budget consultations with the captains of industry and other major stakeholders.  

This year Sitharaman held elaborate consultations also with BJP leaders and business leaders, academicians and economists who are closely associated with the party.

Representatives from 25 BJP state units also participated in the online discussions.

Some prominent think-tank members and presidents of BJP’s various wings were also invited to present their views and suggestions.

A party statement said that Sitharaman also received about 20 written submissions from partymen.

This was the first time a party in power involved its leaders at various levels in pre-budget consultations.

It is reasonable to assume the BJP viewed this year’s consultations in a broad context which goes far beyond the five Assembly elections. What Sitharaman did was to begin the process of strengthening the economy with her eyes firmly on 2024, when Modi has to face parliamentary elections again.

The third wave of Covid-19 was raging in India, the second worst -hit country, when Sitharaman started work on the budget. By last weekend, the number of Covid-19 cases had exceeded 41.1 million and the number of deaths had crossed 494,000.

In the earlier phases of the pandemic the government had announced multiple stimulus packages to help the pandemic-hit industries.   Some economists have found fault with the packages on the ground that they were directed towards boosting production and overlooked the need to boost consumer demand.

However, other economists give the government credit for containing inflation and preventing the economy from sliding into recession.

Available data shows that the benefit of the stimulus measures went mainly to big businesses although small and medium businesses were the worst-hit.

Last year’s budget had provided for an increase of 137 per cent in healthcare spending to address some critical deficiencies brought to light by the pandemic. This was only about 1.8 per cent of the GDP. Healthcare professionals made out a case for raising the outlay on this sector to at least 2.5 per cent of the GDP.

The pie has shrunk. Many are clamouring for a higher share of it. The budget figures will give us an idea of the extent to which the Finance Minister has been able to satisfy the various sections.