The Political Fix: Three risky policy moves that lie at the heart of India’s Budget 2020

Tax cuts, tariffs and LIC.

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The Big Story: Budget tea-leaves

Illustration: Nithya Subramanian

This week’s big political story is bound to be the Delhi elections, which took place on Saturday. But we will not know the results till Tuesday, February 11, and all we have to examine between now and then are the turnout numbers (which tell us nothing, as I wrote last year) and exit polls, which have often been wrong.

So we’ll look at them next, aside from a short re-cap that you can find below.

Instead, today, we’ll go back to the Budget, which we took an initial look at in last week’s newsletter.

I want to point you in particular to three different elements of this Budget that are most interesting for those following Indian policymaking.

We’ve also collected a number of other analyses on the Budget, including pieces by Andy Mukherjee, Suyash Rai, Shruti Rajagopalan and more here.

Tell you how to save?

Maybe the most talked-about Budget announcement in the English press was the option given to income taxpayers to pick lower rates if they give up their exemptions. Leaving aside the reminder of how this makes the most headlines despite impacting less than 5% of the population, the policy approach raises some important questions.

For decades, India has offered deductions on its tax rates to channel spending and saving into certain areas. You get tax rebates for items like house rent, home loans, putting money into the Public Provident Fund and National Savings Certificates. The new, lower income tax rates come without the option of these exemptions.

While individuals will have to see which approach makes more sense for them (higher rates with deductions or lower ones without), for the government it means less control over what people will do with their money. This could unleash consumption, which is what India needs right now, or people might end up saving – but not in ways that the government can access.

For a country where the savings rate has already been falling, this is potentially dangerous. The government has explicitly sold the approach as one that treats taxpayers as mature, trusting them to spend as they see fit, while others worry about the effect it might have in the long run.

A similar option was offered to corporations in September 2019, and initial research suggests that did have some positive effects, but it remains to be seen whether it will actually revive spending or turn into another economic headache.

Borders with windows?

Arvind Panagariya was once one of the most important economists in Prime Minister Narendra Modi’s government. So these words assume significance coming from him:

“A little more than two years ago, when [Government of India] raised some tariffs, as an eternal optimist, I took the view that this was an isolated action driven by a bureaucrat steeped in socialist-era thinking. But a disturbing pattern in trade policy has emerged since then. Not only have tariff increases continued, licence permit raj-era protectionist vocabulary also has had a comeback.” 

Indeed, while many have pointed out that the Budget seeks to attract foreign capital, it is also putting up walls around the Indian economy. Import tariffs are back. Despite many arguing that they won’t achieve much and will most likely hurt India in the long run, the combination of the Great Indian Slowdown, and the acceptability of protectionist policies in the time of US President Donald Trump may have pushed the government in that direction.

The government has also voiced more sceptical language on Free Trade Agreements, bilateral or regional, which brings all sorts of other implications about the economy as well as India’s leadership (or lack thereof) in the region.

Opening up LIC

Despite slightly more transparent numbers, the Budget’s maths still stands on very shaky ground. Nobody is certain that this year’s estimates will actually be realised, and next year’s projections depend on a massive Rs 2.1 lakh crore (Rs 2.1 trillion) in disinvestment revenues, i.e. the selling of portions or entire bits of public sector entities.

The biggest chunk of that is expected to come from an Initial Public Offering for the Life Insurance Corporation of India or LIC. The former monopoly continues to utterly dominate India’s insurance sector, meaning it will most likely be India’s biggest ever public offering while also creating the country’s biggest company, by market value.

You could look at this as desperation from a government that is running out of money because of its economic mismanagement and the Goods and Services Tax disaster. Employees of the company are certainly preparing to publicly protest the move, that many see as dangerous and disruptive for an entity that millions of Indians rely on.

But you could also see this as a move to transparency. The LIC has frequently been used by the government as a trouble-shooter, with its massive resources being used to absorb or prop up other public sector entities that are facing difficulties. An IPO, which brings much scrutiny, might change all of that, forcing the government to interfere less with LIC.

As with the policies above – a new taxation approach or just a short-term move to prop up consumption, a response to growing global protectionism or falling back on outdated import policies – the LIC IPO will be a big test of this government’s economic policymaking, one that brings with it high risks and high rewards.

Have thoughts on the Budget or what these policies will achieve? Write to rohan@scroll.in

Delhi Election Watch

On Tuesday, we will get the results of the Delhi elections, after easily the most hate-filled campaign in the capital in decades. As we discussed in a preview of the elections on the newsletter, the campaign began with the incumbent Aam Aadmi Party (which won 67 of 70 seats five years ago) as the front-runner, with the Bharatiya Janata Party a distant second.

On Saturday, as the exit polls came in, the situation seemed to be the same. Per projections, AAP is well ahead, and though the BJP will improve from the 3 seats it won in 2015, it won’t come close to winning. See NDTV’s ‘poll of exit polls’ below:

But it’s important to understand what happened in between. At the start of the campaign, the BJP was mostly trying to sell itself as a better bet for the development of Delhi.

By the end of it, the party had switched tack to open religious polarisation, calling its opponents “anti-national”, with ministers leading chants demanding the shooting of “traitors” and attempting to turn the election into a referendum on Shaheen Bagh, where protesters have been camped out for two months against changes to the Citizenship Act that are seen as anti-Muslim.

AAP tried not to be drawn into the debate, saying law and order in the capital is controlled by the BJP – even as Delhi Chief Minister Arvind Kejriwal tried to reassert his Hindu credentials on TV.

A few reads from Scroll.in:

Recommendation Corner

Last week one of the books recommended in the recommendation corner was Siddharth Singh’s The Great Smog of India, which looks at the history and complexity of air pollution in India.

So I reached out to Siddharth to send in recommendations on energy, climate and air pollution, which he believes do not get enough attention in mainstream conversations.

Here are his recommendations:

  • Taming the Sun, by Varun Sivaram. The book is a masterclass in understanding the development of the solar industry and pitfalls that may lie ahead. The author himself speaks from authority having a wide experience in academia, industry, and government despite his relatively young age.

  • India in a Warming World, edited by Navroz Dubash. I wouldn’t blame you for thinking that an edited scholarly book would be a dry and discontinuous read. But India in a Warming World is anything but this. The book has contributions from India’s most important figures in climate change – lawyers, diplomats, negotiators and academics. The text reads as one story – the story of climate change in India. (And here’s a little secret: the book is available for free online).  

  • Peak Planet, podcast hosted by Karthik Ganesan. I can’t think of a better Indian podcast that is centred around the environment. With an excellent production team to back him up, Karthik delves into the most critical environmental themes of our times along with the country’s most informed experts. The first season of the podcast is on India’s air pollution crisis, and this is perhaps the best place to hear about it.

  • The Technology Review > Climate Change. There are several platforms to read about climate change, but I like the MIT Technology Review’s focus on it the most. It often cuts to the chase, is quite non-technical in its writing and often focuses on the development of solutions.

  • Down To Earth. Ideally, we should have climate change reportage in every newspaper in India, daily. After all entire communities are being impacted by it, and there are a range of actions that deserve scrutiny. Meanwhile, Down To Earth is perhaps the best dedicated resource for environmental developments in India.

Have recommendations for an article, book, podcast or academic paper that deals with Indian politics or policy? Send it to rohan@scroll.in. Previous recommendations from the Political Fix are collected here.

Catch-up

Kashmir watch: It has been six months since the government suspended civil liberties and jailed political leaders. Here is a snapshot from Scroll.in articles. Two more former chief ministers had their detention extended under the draconian Public Safety Act.

Parliament watch: Prime Minister Narendra Modi refused to acknowledge any economic problems (yet again) and mistakenly quoted a satirical website as explanation for why political leaders in Kashmir were detained. He also had the word “liars” (referring to the Opposition) expunged from the official record. The Home Ministry answered a number of questions about the National Register of Citizens, without clarifying much.

Fear about a potential National Register of Citizens is endangering the Census. Anyone collecting data in rural India is now viewed with suspicion, because of worries that their work could lead to disenfranchisement.

Raj Thackeray has suddenly taken a sharp right turn. The Maharashtra Navnirman Sena chief, who spent last year attacking the BJP, is now trying to ape its politics and fill the space left behind by the Shiv Sena.

Police in Karnataka questioned school children on five consecutive days. The students, aged 9 to 11, were interrogated over a school play that featured criticism of Modi also prompting a debate about children and politics.

Kerala has withdrawn the “state calamity” alert over Coronavirus. So far only three people have been declared positive in India, though thousands are under observation.

NGOs in India may face more government harassment. One of the new rules tucked away in the Budget requires NGOs to renew their registration every five years.

Poll toon


Scroll.in Ground Report

They gave up farmland for the new Andhra capital. Now they are crippled with uncertainty. Sruthisagar Yamunan reports from Amravati.

“We are equally angry against both parties,” said Loka Naik, a member of a Scheduled Tribe community.

Naik said it was true that brokers had purchased land in the area at low prices before the construction began in 2015, but the YSR Congress government was punishing farmers for the corruption of the politicians. “What mistake did we do in all this except losing our lands?” he asked.

Also check out Arunabh Saikia’s report: How television news (and social media) is making Hindu youth in North India angry – and violent

Ground reports aren’t cheap! To help Scroll.in reporters go beyond what the mainstream covers, contribute to the Scroll.in Reporting Fund.


Reports and Op-eds

What do workers hope for? Anumeha Yadav transcribes the thoughts of Manu Majdoor, a garment worker, on the India Forum:
“What work respects life? Work that will respect life would be that where you could teach my child, and I could stitch cloth for you, maybe my family can make food for you, and you can do something else for us. How is it acceptable that for me to get two meals you get me to work 12-14 hours?”

Seminar has a whole issue looking back at India in 2019, with pieces by Yamini Aiyar, Suhas Palshikar, Srinath Raghavan, Niraja Gopal Jayal, Faizan Mustafa and more.

There are still lots of questions about India’s statistics. Pronab Sen on the Economic and Political Weekly says there is clear ministerial interference in data dissemination, while Mint’s Pramit Bhattacharya looks at the big picture.

Is Arvind Kejriwal’s pragmatic soft-nationalism a new centre for Indian politics? Rama Lakshmi argues in The Print that his approach could be emulated, without drawing from Hindutva or the Left.

Rural, poor and lower caste voters are behind the BJP’s rise. Yaajnaseni on Swarajya has some takeaways from the paper that we linked to last week.

Aatish Taseer goes looking for “India’s soul”. With video reports on Al Jazeera, the writer attempts to explore India’s religious fault lines.


Can’t make this up

There’s not much I need to say here. There’s a man. In a bear costume. Trying to scare away langurs, a species of Indian monkey, from wandering around the Ahmedabad airport. Just watch the video.

Thank you for reading. Please send more amazing animal costume videos, interesting reports and recommendations to rohan@scroll.in, and if you like the Political Fix, please do share it!

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