Why 2019 interim Budget will be a thinly disguised election manifesto

The only function of economic forecasting is to make astrology look respectable,’ quipped John Kenneth Galbraith, one of the most brilliant, yet underrated economists of the 20th century. Privately, most economists might agree. But come January, they get back to their favourite business of making astrologers look respectable.

But I’m going to play safe. I’m going to restrict my predictions to the forthcoming interim Budget. It’s a safe bet. By definition (and convention), an interim Budget doesn’t give government elbow room to do many of the things that make the Union Budget one of the most keenly watched economic events of the year.

Indeed, the only purpose of an interim Budget is to ensure the business of government doesn’t grind to a halt. Remember, our fiscal year ends on March 31. Remember also, that no money can be spent from the Consolidated Fund of India without first obtaining parliamentary approval. The interim budget is, therefore, only a means to allow GoI to continue its obligatory spending until a regular Budget is passed by Parliament once a new government is sworn in after the Lok Sabha elections in late May-early June.


De Facto Poll Manifesto
So does that make interim Budgets irrelevant? Not at all. Though govts have typically (though not always) abstained from tinkering with taxes, interim Budgets have, invariably, been used to serve a far more ‘important’ end: to present a ‘glowing’ report card of their achievements, and to hold out a promise of more good times (achche din?) in case they are reelected. And most important, make a not-so-subtle pitch for another term in office. For all practical purposes, the interim Budget Speech is a de facto election manifesto.

Arun Jaitley’s interim Budget speech is unlikely to be any different. Congress might cry itself hoarse on how this is an abuse of the best traditions of parliamentary democracy. But it will be on a weak wicket.

Former PM Manmohan Singh’s only interim Budget (1995-96) was nothing short of a full-fledged election speech. After outlining the achievements of the PV Narasimha Rao government, Singh concluded, “Soon, our people will be called upon to exercise their sovereign democratic right to choose the next government… I have every reason to believe that when the time comes, our people will be discriminating enough to recognise the friendly hand that alone can help our nation to move forward on the road to peace and prosperity and preserve its unity and integrity.’

The allusion to the Congress’ party symbol — the hand — was far from subtle.

Pranab Mukherjee went one better. Concluding his Budget speech of February 2009, Mukherjee ended, “Our people will soon be called upon to exercise their democratic right to choose the next government. I have no doubt that when the time comes, our people will recognize the hand that made it all possible. The hand that alone can help our nation on the road to peace and prosperity.”

The most recent interim Budget, presented by P Chidambaram in February 2014, was no different. After paying lip service to the tradition of not tinkering with taxes, he went on to make a number of changes in indirect taxes on the grounds that ‘the current economic situation demands some interventions that cannot wait for the regular Budget’. He ended his speech promising to ‘remain on the bridge until the day when, I am sure, the people of India will entrust the responsibility to a hand that will hold the sceptre swayed with equity’.

Likewise, Jaswant Singh’s interim Budget (2004-05) was replete with references to NDA’s achievements and his government’s unfinished agenda. Nothing more. Perhaps, BJP is handicapped by the fact that its symbol — the lotus — doesn’t lend itself so easily to allegory.

Fiscal Management
But interim Budgets are more than thinly disguised election manifestos. They tell us a great deal about government’s fiscal management. Take the three interim Budgets presented after 1998-99. In interim Budget 2004-5 and 2014-15, governments walked the straight and narrow in their last full year in office, 2003-04 and 2013-14. Their discipline paid off.

Revised estimates of fiscal deficit (FD) came in well within the Budget estimate (BE) for the pre-election year (see table). In the subsequent five years, the country benefitted. But the incumbent governments lost. Interim Budget 2009-10 was different. The multitude of giveaways, many of which pre-dated the global financial crisis, saw FD shoot up in the last full year of UPA 1 (2008-09).

Against a BE of 2.5%, we ended with FD at 6% of GDP. The economy was adversely impacted. But UPA returned to power. The conclusion is indisputable. Governments that exercised fiscal prudence— NDA in 2003-04 and UPA 2 in 2013-14—were voted out in the subsequent general elections. In contrast, UPA 1 paid scant attention to fiscal prudence in 2008-09, and returned to power.

So, what will Jaitley draw from recent interim Budgets? Will he keep the long-term interests of the country in mind (read: limit spending in the remaining months and content himself with a long (boring) recounting of his government’s achievements while pitching for another term)? Or will he play the consummate politician and open the spigot in the weeks to March 31, 2019? Watch this space.