While the interim budget for the financial year 2018-19 was comprehensive albeit with an emphasis on farmers and tax payers, it continued the emphasis on infrastructure development with an outlay of over $ 66 billion aiming to propel the economy into a $10 trillion economy.
However, the current budget does not talk about economy or even bonafide politics as it often does. It talks, instead, about political economy! Political economy is purely governance by the appointed government which then takes decision with economic consequences, always weighing what it might mean for them (the government) politically. A smart government always runs a good political economy, and one which is not smart enough, tends to struggle. So where does the current government feature in this case?
Over the past four years, media has been much critical about the NDA government on many issues, whether it be demonetisation, which was often called as nutty as Mao's war on the sparrows in China. But having said that, there are few areas where we think the BJP-led NDA government has done very well on political economy. In fact, it has done better in some areas than the Congress government in the second term of UPA.
The first, and in our view, most important to national interest is the Insolvency and Bankruptcy Code (IBC). The IBC has made it impossible for companies that default on bank loans over time to get away with it. In the past, there was culture immunity which does not exist anymore. In fact, the period of 2008-2014 can be recognised as the period of aggressive credit growth, since the outstanding loans of public sector banks ballooned from Rs 18 trillion to Rs 52 trillion. This happened because many projects were started which could either not be completed or had low capacity utilisation. Some of this can also be attributed to the cascading effect of the irrational exuberance which spread like wildfire as a result of the diet of financial steroids that the developed world has been on.
However, we talk on a day when one of India's most powerful corporate houses and crown jewel of ADAG - Reliance Communication - has filed for bankruptcy. So the government has become more vigilant and made it difficult for top industrialists who face bankruptcy now, to get a reprieve. And once it is palpable that nobody is too big to fail, others fall in line. As we speak, banks are now reporting a recovery of Rs 3 trillion through IBC process. There is a bonfire of corporate vanity in place, and we do think that out of this bonfire vanity will emerge a new Indian capitalism.
Going ahead, the government has kept the inflation under check. It inherited an inflation rate of 8.3 per cent, which is now down to 2.2 per cent. It is because of inflation targeting that the country has been able to absorb high fuel prices. People may complain about the higher fuel prices but looking at their monthly budget, they have been compensated with low inflation, elsewhere.
The next point is better tax compliance and collection which has improved tax to GDP ratio under this government. All this has created the fiscal headroom to action two essential things - firstly, ability to give away freebies promised by this government for centrally monitored schemes, and secondly, the headroom for large investments in the infrastructure sector such as highways, ports, railways, Sagarmala and Bharatmala, airport infrastructure, North-East development to name a few. In fact in the past 10 years, in terms of percentage of GDP, India's infrastructure spend is almost threefold and a large share of that increase has been over the past four years although the road sector has dominated the headlines. In fact, a lot has gone into railways and during Piyush Goyal's tenure one has seen a remarkable improvement in passenger safety and a decline in fatal accidents.
The final stroke is GST. Any government that introduced the GST would have faced trouble for some time, and there would have been hiccups. It's a question of holding its nerves. It goes without saying that GST could have been planned and implemented in a better way. But post its implementation, the government did not lose it nerves and GST is now settling down with the January 2019 figures showing an uptick beyond Rs 1 trillion.
In Cricket, the last over is known to have changed the fortunes of the losing side. Over to the elections. May development win.