Not For What It Promised But What It Already Delivered: Why The Budget Deserves Praise

The budget deserved praise not for what it promised but for what it has already delivered.

Promises are, well, promises. For outlays to become outcomes; for announcements to become achievements or accomplishments, one needs execution. Execution requires political will, and has to overcome political opposition and stakeholder resistance.

That needs conviction and, of course, divine will or luck.

Therefore, the budget cannot be praised for its promises and announcements. It should be praised for what the Ministry of Finance could have done and whether it did them. They did that very well.

They ensured that the budget gave a fair and accurate representation of public finances at the level of the Union government.

They made realistic assumptions on next year’s growth rate, i.e., for 2021-22. They made reasonable assumptions for revenue buoyancy. They did not budget for big dividends from the Central bank or from spectrum sale.

Their revenue projections for the current year are more likely to be exceeded than fall short.

Their revenue projections for 2021-22 are even lower than the original budget estimates for 2020-21, while the Gross Domestic Product would end up almost at the level originally projected for 2020-21 by the end of the financial year 2021-22.

The number of documents they had uploaded on the budget far exceeded anything seen before. That suggests a willingness to disclose rather than hide.

It is a huge goal for transparency and accountability.

It is very likely that all of these would be understood and appreciated by market participants over time and that would result in a meaningful decline in the India country risk premium.

That is the biggest contribution to sustainable growth that Ministry of Finance could make and they have made it.

None of the announcements made in the budget — asset monetisation or land sale or privatisation — are necessary conditions for achieving a high growth rate.

Nearly two decades ago, India did achieve high growth rates for about five years. None of the above conditions were present. Yet, it happened. The reasons are that the corporate sector had leveraged, the banks had cleaned up their asset books and thus there was both demand for and supply of credit.

Global capital further fuelled the credit boom while the global economic recovery aided rapid export growth. Excepting the last, this time around, all the other conditions are present and arguably in even greater strength than they were, then.

Banks and their borrowers have put behind their deleveraging cycle. Corporate profit growth is healthy and debt servicing costs are declining. Anecdotal evidence suggests that the non-financial corporate sector is willing to invest and is doing so. Foreign capital — direct and portfolio — is seeking India out. The last point is critical.

Liquidity conditions in the developed world are unlikely to become tight. One can never say ‘never’ but the chances are slight to negligible. If anything, they may become even more accommodative.

Put differently, the odds of them remaining accommodative or becoming more so are much shorter than them turning unfavourable for capital importing countries like India.

As important, if not more, other emerging economies are in far worse shape than they were at the beginning of the new millennium. Politically, economically and socially, they are far more uninviting than they were in 2001 or in 2002.

India, in contrast and in relative terms, is an oasis.

[Of course, parenthetically, we must note that it represents a risk. Many adversaries of India — sovereign or not — would have taken note of this and would work to damage India’s attractiveness and potential for sustained high growth. That risk is non-trivial. India and Indians should anticipate and neutralise them smartly and craftily rather than hysterically.]

That is why regardless of whether promises would be kept and announcements become achievements, the budget had greatly aided the likely spontaneous economic recovery by doing its considerable bit to reduce the country risk premium and thus the cost of capital.

The budget has done that by not putting the considerations of revenue ahead of the economy. In the past, such a focus has served neither the cause of the economy nor that of revenue. Now, there is every chance that both the causes would be better served.

There is a philosophical lesson in this for those who can reflect on it and grasp.

The challenge is to sustain the high growth rate that looks far more likely to come India’s way than not. That requires removing the regulatory heavy hand from the shoulders of Indian businesses — micro, small and big — and the government becoming a responsible and responsive counter-party in all its contractual dealings with the private sector.

That is not in the hands of the Ministry of Finance. Indeed, that is not even only about the Union government but far more about the State and local governments.

So, let me conclude by sharing the eternal wisdom embedded in a beautiful prayer:

God, please give me the courage to change the things that I can;

Give me the serenity to accept things that I cannot and

Give me the wisdom to know the difference.

It is evident from the budget presented by the Finance Minister that they prayed on these lines and that their prayer was granted.