However, going by the Sensex (which reclaimed Mt 50K at the end of Day 3), the bellwether for market sentiments, analyst comments and muted criticism, the consensus verdict seems to be that Sitharaman actually pulled it off. More importantly, she has signalled a paradigm shift. Some are even calling it the ‘1991 moment’, when India undertook an unprecedented acceleration in reforms, including the ejection of licence raj.
They are right. But there is a difference. Yes, then, too, the action was led by a PM-FM duo. But it was still Congress at the helm (sans a Gandhi leadership), the very same party that had authored the earlier regime and, hence, not totally committed to the idea of dismantling it. But for the balance of payments crisis and the consequent dependency on the Bretton Woods twins (International Monetary Fund and the World Bank) for a conditional bail-out, the reform movement would have remained an iterative exercise. Thirty years later, the political regime has had a radical makeover.
BJP, which replaced Congress as the new political pole, is leading a coalition government for its second consecutive term in office. Led by Narendra Modi, BJP has demonstrated, not once but twice, its political prowess in managing a majority on their own. Even better, it is not vulnerable to coalition pressures. This regime, therefore, carries no historical baggage. In fact, if anything, it has a vested interest in hitting the legacy reset.
Yet, for six years, they struggled to find their voice in the budget. The 2021 Budget is the turning point — or a new beginning. Yes, the ‘bahi khata’ is Sitharaman’s calling card. But the real legacy is elsewhere. The subtext of this paradigm shift is the rewriting of the budget lexicon. Two structural reforms are clear standouts.
Don’t Give a Dime
First is the reset in the fundamental rule of budget-making. Inherited in 1980, thanks to the none-too-subtle nudge by the high priests at IMF who were overseeing a bail-out loan for India, Sitharaman has buried the fear of fiscal karma. In the past, the entire focus of the maths underlying every budget was to take the fiscal deficit (or gross borrowings) as a given, and work backwards.
Breaching this cap was unthinkable. Not surprisingly, none of her predecessors were comfortable in admitting to fiscal slippage. Exactly why the idea of internal and extra budgetary resources first introduced in the 1980s — turned into a fine art by Manmohan Singh later — became an integral feature of balancing the books. But what every FM did was to kick the fiscal can down the road. It was like the worst-kept truth. Yet, no one dared calling it out.
Sitharaman has turned the fiscal deficit into a residual of the expenditure priorities — in this instance, reviving the economy by creating capital assets and shoring the socioeconomic fabric of India. Which is what it should be. Further, she has come clean on the debt burden. To use sporting parlance, she has pivoted from defensive to offensive play.
Second is the practice of disinvestment. It was Yashwant Sinha who had introduced the idea in his 1990 Union budget, which was aborted after the government headed by Chandrashekhar fell. Even Sinha, despite being a voluble critic of this regime, would concede that Sitharaman has done more to the cause of public sector reform than any predecessor. It takes a lot of political courage to undertake a fundamental makeover.
Especially in directing the public sector, the hitherto untouchable, to cede the ‘commanding heights’ — the envisaged role in the 1960s to steer the Indian economy — to the private sector. In the process, unmindful of the ‘suit-boot sarkar’ jibe, Sitharaman has unambiguously reinforced the pro-business credentials of this government.
The new divestment policy — which should actually be christened ‘privatisation’ — Sitharaman tabled in Parliament with her speech, says, ‘[The priority is] Minimising presence of central government public sector enterprises (CPSEs) including financial institutions and creating new investment space for private sector,’ before bluntly adding, ‘CPSEs will be privatised, otherwise shall be closed.’
Now, This is Private
And since this policy is an annexure to the FM’s budget speech, eventually when Parliament passes the budget, this paradigm shift will be written in stone. Taken together with another budget proposal, asset monetisation, the imminent makeover of the public sector is apparent. Going forward, operating public infrastructure assets will be monetised by handing it to the private sector. Not only will this free up scarce government resources to be directed to other big-ticket infrastructure projects, it also signals a new role for the public sector: from creator to facilitator.
Now, to walk the talk. Especially in steering this change past an opposition, already incensed over the new farm laws.
Welcome to Modinomics.