Can Budget factor in political capital and global headwinds?
The global economy might become more unpredictable in the future. This increases the need for a more cautionary approach to policymaking.
The NDA government will present its first budget on July 23. While the government is maintaining that the budget will signal continuity with the economic approach of the last government, the devil as they say will lie in the details.
Here is what the economic approach of the second NDA government was in a nutshell. It faced three back-to-back economic shocks in the pandemic, the war in Europe and global inflation and monetary tightening. Its response, once the challenge of preventing catastrophic human suffering during the pandemic was over, was to protect macroeconomic stability more than anything else. The endeavour helped to boost India’s standing in the eyes of investors but did little to correct the skewed growth trajectory that the economy went into after the pandemic. While counterfactuals always require a leap of faith, this might have played a big role in generating headwinds for the BJP’s election campaign. Will the budget make a pivot to rebuild this lost political capital, even if it comes at the cost of fiscal consolidation, both in terms of quality (revenue over capital) and quantity of spending? Prudence will suggest that the government should stagger such a pivot to maximise its impact over state elections due at different points in time between now and 2029.
Two things will test such a recalibration of the government’s economic programme. Taking things to the other extreme in terms of capital expenditure to revenue expenditure and fiscal prudence to more spending in a knee-jerk manner isn’t going to take care of India’s structural economic challenges. Any political re-evaluation of the past government’s approach should be done objectively. The global economy, given the ongoing political upheaval in Europe and America, might become more unpredictable in the future. This increases the need for a more cautionary approach to policymaking.
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