Victorious and Victorian

We got a Dickensian Budget for a Dickensian Economy

Dickensian Budget for a Dickensian Economy

Those of you who have not read a line written by Charles Dickens may still spout a couple of snatches from the opening passage of A Tale of Two Cities: ‘It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair.’ That dichotomous litany might well have been about the Indian economy today.

Glorious Fact (GF): As the fastest growing large economy of the world, India is a beacon of light for the world at large, and is headed to the third rung of all economies ranked by size, in the not-too-distant future. Ignominious Fact (IF): Rural wages, adjusted for inflation, have been declining for the last five years, on the trot. GF: India is home to the third-largest number of tech unicorns. IF: A quarter of senior school students are incapable of reading a Class 2-level text fluently in their ‘mother tongue’; more than half fail to divide a three-digit number by a single-digit number.

GF: FDI inflow into the country in the 2014-23 period doubled to $596 billion, compared to the inflows in 2005-13. IF: India’s fixed capital formation as a proportion of GDP, in current prices, languishes below 30%. The comparable figure for China remained close to 50% for years on end during its highgrowth phase.

GF: GoI is serious about fiscal correction, plans to contain the gross fiscal deficit at 4.5% of GDP in 2025-26, after going down to 5.1% in 2024-25, from the 5.8% expected to be achieved in 2023-24, bettering the original budget target of 5.9%. IF: The ratio of general government debt to GDP, which had dipped below 65% in 2010-11 and started climbing thereafter, touched 88.5% in the Covid year, corrected to about 81% of GDP, but is slated to climb back up to 82.4% next fiscal. Consequently, interest outgo is a larger share of the central government budget than investment.

GF: Digital payments and direct benefit transfers increase transparency. IF: India’s rank in the global Corruption Perceptions Index slipped eight notches in 2023, from 85 to 93, in a ranking of 180 countries.

Is the economy glorious or dismal? The glass is not just either half-full or half-empty. It is both. The question is what you choose to emphasise.

Whatever we tell foreign would-be investors, in the election season, it pays to mind the opinion of the voting masses, rather than of the classes. And GoI’s interim budget reflects this awareness of dismay on the ground. As large a proportion as 56% of the population is being coddled with free food for the next five years.

Food subsidy is ₹2,05,000 crore. Fertiliser subsidy is ₹1,64,000 crore. PM Kisan gets ₹60,000 crore. MGNREGA gets an outlay of ₹86,000 crore. PM Awas Yojana gets ₹80,761 crore. There are multiple schemes for the welfare of the annadata, the humble farmer.

Food subsidy is a misnomer. It is, for the most part, a production subsidy. Food subsidy is the difference between the expenditure and revenue of the Food Corporation of India (FCI), charged with procuring grain at the periodically raised minimum support price (MSP), stocking it, and selling it to state civil supplies departments at a discount to the cost of procurement, handling and storage.

The higher the MSP, the higher the subsidy bill. Support prices cover the cost of production and a margin. Fertiliser subsidy lowers the cost of production. PM Kisan Samman Nidhi, which gets ₹60,000 crore, is on top of all these. Over and above these outlays from the Centre, the farmer receives explicit and implicit subsidies from state governments, in the form of free or subsidised power, free canal irrigation, and procurement bonuses added on to FCI prices.

This dumping of subsidy on the farmer, still leaving him angry and resentful, illustrates what is wrong with letting the urge to announce more and more schemes run ahead of policy sense. Sense suggests rolling all input subsidies into a single, large cash subsidy, to be disbursed to the farmer per unit area of land cultivated, regardless of ownership, leaving the farmer to decide how to spend it, on which crop and utilising what seed/sapling, other inputs, and growing technique.

GoI would save a lot of money that could usefully be invested in rural infrastructure to link the farmer to the market. This would boost farm productivity and output, which are dismal, by global standards.

Shelter for all is sound policy. But why seek to ground India’s increasingly footloose workforce by foisting owned homes on them? Why should government not invest, instead, in town planning and public housing, available for affordable renting? Innovate Public Private Partnerships for this.

High levels of perceived corruption reflect badly on financial reporting and corporate governance standards, and deter would-be investors, seeking to deploy the ageing rich world’s hoard of savings in fast-growing regions to fund its retired life.

Should the R&D fund go to industry or our universities, for labs, research projects and generous scholarships that take serious doctoral research outside the Gucci bags of the rich? Can industry do R&D without high-calibre trained researchers?

We got a Dickensian budget for a Dickensian economy.