Posted by: John Elliott | February 26, 2010

India’s finance minister drives the Opposition onto the streets

Pranab Mukherjee on his way to parliament

 Pranab Mukherjee, India’s finance minister, has long been recognised as a compulsive politician and the Congress Party’s most able political tactician and fixer. But he could never have imagined that he would score such a hit as he achieved today in his annual Budget speech when he unintentionally flushed out how bereft the opposition, led by the Bharatiya Janata Party, is of constructive ideas and even constitutional etiquette.   

The BJP has been in a mess since it lost the 2004 general election and it lacks policies and effective leadership. But no-one thought it had sunk to the level of walking out of parliament during an annual budget speech. Yet that is what it did today, along with other opposition parties, after noisily trying to drown out the finance minister’s words when he had announced hikes in diesel and petrol excise duties.   

The Congress Party frequently stalled parliament when it was in opposition, lowering the standards as much as the BJP has done in the past. But the opposition went further today, with what was the first ever budget speech walk-out – even though the BJP raised fuel prices many times during its 1998-2004 period in power.   

The parties hope of course that the walk-out will increase the political pressure on the government, which is being widely criticised for recent hikes in food prices that it should have avoided – but this surely was not the way to do it.  

Later in the day, the government announced consequential fuel price increases of 6-7.75% that will fuel inflation and are likely to lead to widespread political protests.

Mukherjee’s budget was otherwise uninspiring. Last July, when he presented his first budget after the May general election, I wrote that he had no apparent reform agenda , and little has changed.   

He announced substantial income tax concessions that benefit lower income earners, and projected recovery of economic growth from the current 7.2% to 9% or more, targeting reductions in the fiscal deficit from the current  6.9% of gdp  to 5.5% in the coming year and around 4% after that.   

But it seemed as if the introduction to his speech had been drafted in a different office from the rest. There have been many calls for Mukherjee to branch out with some sense of vision and reforms, and he began as if he was going to do so.   

He set out his challenges of reverting to high gdp growth, and harnessing that to make “development more inclusive” with rural development and improved education and health facilities. There was a need to tackle “weaknesses in government systems” and the “bottleneck of our public delivery mechanisms” (presumably a reference to corruption and bureaucratic lethargy that blocks development).   

He then wisely said that the Budget “cannot be a mere statement of Government accounts”, but had “to reflect the Government’s vision and signal the policies to come in future”. It also had to be an enabler of “individual enterprise and creativity”, and a supporter of  “disadvantaged sections of the society”. That, he proudly said, was the “broad conceptualisation of the Budget that informs my speech today”.   

It sounded as if he was indeed about to deliver a great speech. But, almost with relief it seemed, Mukherjee’s tone of voice then changed and, for the next 90 minutes or so, he presented the sort of mechanical budget that he used to produce when he was first finance minister in the early 1980s – a style I remember and which television commentators also noted today.   

He announced the tax changes, the unpopular excise duty hikes, and expected boosts for defence and infrastructure spending and farm credit waivers,. But there was little new in terms of financial and structural reforms, apart from welcome plans to licence more banks. Other initiatives such as selling minority stakes in public sector businesses and loosening foreign direct investment rules were far from new. 

He ended with a catalogue of 1980-style special incentives for selected business areas such as two-star hotels and cold storage plants, which will please many vested interests and cement his reputation, as I said at the beginning, as the party’s most able political tactician and fixer.   

But at the end of it all, the stock market was happy, excited by income tax concessions. Opposition politicians were also happy, back on the streets where they seem to think they belong. They are now threatening to stall proceedings, when parliament reassembles after this weekend’s Holi festival, till the excise duty increases are cancelled.


Responses

  1. A visionary FM, we should not criticize, we have to appreciate him.

  2. This “vision” thing is highly overrated. Frequent grand visions could be construed as hallucinations. And big bangs often result in big flops. The great leap forward often stumbles badly hurting millions.

    Grand visions should be rare — one in twenty thirty year events at best. And they should be followed by long periods of steady and persistent effort to translate the grand vision into reality.

    About two decades ago the India polity and political parties underwent a major visionary shift — recognition and acceptance of the superior power of markets and market competition in spurring economic growth and increasing personal incomes.

    Happily, since then there has been a systematic and sustained policy effort to realize this vision. The cumulative benefits of continuous deregulation, more independent monetary policy and increased acceptance of fiscal discipline, have been substantial and the political system has adjusted and adapt in a relatively stable manner. Income inequalities have been kept in check — they are nowhere near levels that could tear the social and national fabric.

    So pedestrian budgets moving along in the right direction may be good and sensible. Of course they do not make for great headlines or provide opportunities for heady and lofty analysis.

    Those who want grand visions need to present a strongly argued and empirically robust case. They should also tell us how the grand vision could be implemented.

  3. No surprises from the man who is warming this seat for all reasons except dynamism or intellectual ability.

  4. A very pedestrian, lacklustre and going through the motions budget speech and budget


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