Finance Minister Nirmala Sitharaman presented the 1st budget of this term of Narendra Modi this week. The reactions to the budget as it is always, were in predictable lines. Some of the saner voices from the commentariat gave the budget a huge thumbs up. But the salaried class which usually has a higher share of voice in social media was pissed off with the budget. The relief of a few thousand Rupees (Rs 17500 to be precise) in income tax was not deemed enough. Therefore, the picture that emerged in social media was that of a lousy budget. But in reality, was it so?
The timing and context of this budget presentation have been interesting. On the upside, the economy has been doing pretty well with an estimated growth rate in GDP of 8.2% in 2023-24 up from 7.0% the previous year. The economy clocked more than 8% growth in 3 of the 4 quarters in FY24. This was amidst the war going on in Ukraine and the Middle East. It has been universally acknowledged that the Indian economy has not just recovered but has expanded steadily post the pandemic.
On the flip side, this is Modi Sarkar’s first budget after the underwhelming and dented victory in the Lok Sabha polls. One could sense the muted sentiments compared to the high optimism when Sitharaman presented the interim budget in February before the polls. Modi Sarkar indeed returned to present the budget as she claimed back then but sans the luxury of a majority, it had in the previous term.
With the above background, from a political and economic perspective, the temptation would have been to present a highly populist budget to get back to the good books of people and wrest the political narrative back in its favour. It is an undeniable fact that the government even after its historic 3rd time swearing-in, has been a bit listless having lost the narrative battle. Therefore, with the elbow room provided by the buoyant tax collections and growing economy, any other government would have rained freebies and schemes to placate farmers, women, the youth, the middle class, the industry – practically the universe.
While the economy has been growing, there has been a continuous issue of unemployed youth looking for jobs. The farmer’s distress has been a constant companion of this government. There are state elections coming up in Maharashtra, Jharkhand and Haryana – states where the BJP is in trouble and may find the going tough. And above all, this is not the BJP government in majority but a coalition sarkar depending crucially on two allies.
Yet, what does this government do? It stays fiscally prudent by committing to reducing the fiscal deficit from 5.6% in FY24 to 4.9% this year. This is even lower than the 5.1% indicated in the interim budget in February. This is extremely significant and not appreciated enough by observers. When the government slips on GDP growth or fiscal deficit as it happened during Covid, the criticism of the government from the commentariat was virulent.
It is important to add here that right from 2014 after it took over a fragile economy, the Modi Sarkar has been extremely watchful about crossing the red line of fiscal deficit. Even when the economy was not firing in the 2018-2020 period, it chose to sit tight without passing on the full cost reduction of oil to citizens. That’s what came in handy then to continue its investment in infrastructure and welfare programmes in that period.
Even during the pandemic, when economists of all hues were asking the government to not worry about fiscal deficit and go ahead with cash transfers to stimulate demand like many other governments did, the Indian government continued to tread cautiously with responsible interventions. The effect of this cautious and fiscally prudent approach is all there to see. While many economies the world over have been grappling with issues of runaway inflation and subdued growth post the pandemic, India has been better placed. In the past three years which were just after Covid, India sustained its high investment in infrastructure and welfare programmes like the free grain to the needy. The important point is, all this while keeping the fiscal deficit under check. Even in the last year, the final estimated fiscal deficit of 5.6% is significantly lower than the original target of 5.9%.
While the significance of this achievement may not be appreciated by all now, it has a huge short-term and long-term impact. In the short term, it doesn’t affect India’s sovereign ratings which in turn works in favour of attracting foreign investments. In the long term, higher deficits impact a country’s growth and stability.
In the aftermath of the Global Financial Crisis in 2008, almost all leading economies in the world came to a consensus that a large fiscal stimulus was required to tide over the crisis. In India also, Manmohan Singh’s government decided to cut excise duty by 2 percentage points as a stimulus. While this move helped in the short term to get the economy back on track, by 2012, we were reeling under the burden of the same. In fact, P. Chidambaram blamed the 2008-09 stimulus package for the rout of the UPA government in the 2014 elections. He should know better because it was he who took over from Pranab Mukherjee as the Finance Minister and was tasked to pull the baby out of hot water.
With history in hindsight, one must commend this Government for not resorting to profligacy and sticking to fiscal discipline at this juncture. Moreover, it stayed away from dangling carrots to the states going for elections. The largesse to Bihar and Andhra Pradesh is but obviously out of political compulsions without which the Government cannot continue. But there as well, beyond the optics and social media meme fest, there are terms and conditions that apply for getting the aid.
That is why I say that under Modi, the budgets have always been more workman-like accounting statements detailing the allocations rather than some big vision statements for the government. Those who expected big bang announcements (like I used to, in the initial years of Modi), always tend to get disappointed. But the point is, big announcements under Modi have come mainly in his Independence Day speeches and not during budget presentations.
From an optics point of view that too on social media, this budget suffers only from being too “Classy” and not “massy”! Social media expected a Padayappa. They got Anbe Sivam.
While BJP did everything to maintain the fiscal discipline (which is laudable) , they have failed consecutively to manage the perception’s of the common man.. let Finance minister also worry about common man in addition to Managing perceptions globally /FDI.. it has left a very bad taste in the mouth of even the strong Modi Bhakta’s.. while the economic prudence is good, the political prudence is questionable !!
Hi Jani, Thanks for your comments.
I agree with you partially. But this noise will die down soon.
I agree with strict fiscal discipline ever since this government took over.
Tax payers constitute a very percentage but occupy maximum space in digital media.
I endorse your views but logic behind long term capital gains unable to make even a wild guess
You mean removal of indexation?
Agree with your views but logic behind long term capital gains tax not explained
That it’s that time of the year again in Bharat when everybody metamorphosizes into an economist & this time the phenomena was more pronounced, as a significant section of the middle-class was led to believe that they’re being taken for a ride. Social media is still humming with us middle-classers, going wild over LTCG. Okay, so first things first – is the budget middle-class unfriendly? In the short-term, probably… In the long-term, nope… Is the middle-class right in cribbing over Nirmala-akka? Well, here’s the problem – every single FM that we’ve had so far has been the target of the middle-class ire & almost every one of ’em FMs were irritated over the middle-class reaction. statistically we’re in safe hands & Nirmala-akka being the longest-serving FM should get a lot of credit here… Moreover, let’s be honest – the average income in Bharat is still Rs 220,000, which is kinda less than Rs 20,000 per month. In UP it is Rs 108,000 pa and Bihar Rs 70,000 pa… 80% of Bharat earns these figures & have they got the budget that can help ‘em meet their ends better? They kinda did… And I do understand that the government wants to prevent volatility & wild speculation in the markets -I can verily attest that I’d rather settle for a long-term affordable housing sector than its current avatar – where even a modest home in any city can set you back by few crores, making housing the biggest pain-point of urban life… But if it’s a half-way decent budget, then why’s the middle-class complaining? Well, a part of it looks like a narrative set on social media by speculative investors & Leftists. Then again, it was the arrogant response from BJP’s social media head that added fuel to fire… Look closely – the e-comm companies are jumping with joy over this budget. So much so that the real estate honchos like Hiranandanis too believe that this budget helps… I’d say all is well, except that the BJP messed up in communicating the good points of this budget & allaying all fears. And this is bad as the party had excelled in this aspect in the past… Never forget what Aristotle advised centuries ago: The most perfect political community is one in which the middle class is in control, and outnumbers both of the other classes…
That to understand & assuage the middle-class anger, one has to scratch the surface here & look at a few more figures in detail. What’s the most common complaint of the middle-class on increased taxation? That we pay first-world taxes & get a third-world lifestyle… Fair point, I must say… And this point gets more pronounced in monsoon, with most cities collapsing under the deluge… Again, to be fair, is this only a Bharat-centric issue? Coz it is experienced in Dubai, China, Singapore & even Switzerland under deluge. It’s an increasingly problematic global phenomena now, for which the solution is decongesting every piece of urban infra…
Although,the middle-class miff is more about being pissed off over not being rewarded for being PM Modi’s vote-bank. Shouldn’t they get the just reward for remaining steadfast with BJP? Actually, they should… I mean just look at the Congress & how they reward their ecosystem. Islamists form the core voter-bank of Congress now & it does everything to keep ‘em happy.… So, the moot question remains: if the Congress government goes all out to support their treacherous voter-base, wouldn’t the middle-class be better off by supporting Congress than the BJP? Actually, no… You see, Congress has always been extra-rough with the middle-class since their inception… Why? The answer is in the numbers… You see, *the middle-class tax-payer community barely constitutes 1% of the population & most of ‘em anyways bunk the voting day to enjoy an extended vacation*
why would any dispensation think twice of honouring such a lazy group who can’t even make for a decisive voting bloc, cometh the election day? Mind you, the entire value-chain of Islamists is based around revenues via the elections, freebies, budget concessions, welfare schemes, easy allotments & an unified response in all community matters… Yup, the mistake is entirely ours, guys… We call ourselves the middle-class, whereas the correct label for us is the muddle-class…
Dear Venkatji, Thank you for reading and leaving your thoughts in detail. I agree quite a bit of what you have said and they are very great points. The salaried class needed some carrot for being obedient tax payers. Just from a optical point of view, some relief should have been given. But as you have rightly pointed out, the absence of that one point doesn’t make the budget bad.
Anand…
Modiji is like head of the family.. Strict father. Children are not happy with strict father but affectionate. Children realize the importance as time pass through.. I believe only SM does not decide political popularity of the party
Thanks, Ramana! Good Analogy…