Jamal Mecklai: A Budget for Sonia

MARKET MANIAC

The singular failing of Mr Chidambaram's Budget was the total lack of passion. There was no upside vision to his proposals.

Even the best aspect of the Budget "" a long-overdue focus on education "" was delivered as a subservience to "service to the poor" rather than as a necessary condition for dramatically improving life in India.

If, instead of announcing, as he did, that "The poor want basic education for their children. We shall provide it..." he should have said something like, "The primary resource that any country has is its people. And India is blessed with over a billion people. However, to make them optimally productive, we need to nurture them, build their skills, educate them. Imagine an India with a billion literate, educated people..."

The entire tone of the Budget would have been different. He could have announced identical proposals "" although there are many aspects that we would have been much better off without "" and had a greater acceptance not just by financial markets but by the people at large.

The good news is that India is strong enough and the economy market-determined enough to withstand this feeble Budget-making. And, of course, whatever the politics, there is no chance whatsoever that globalisation can be reversed.

Globalisation is a natural force, and at very best "" or, should I say, worst "" you can hold it at bay for a while, but you can't stop it. And, to even do that, you need huge amounts of "" indeed totalitarian "" political power. And on that score, the good news is that they don't make strongmen like Stalin or Enver Hoxca any more.

In fact, prior to the Budget, I was amazed at the concerns that people had about the prospects of a reversal of the reforms process. It's just not possible. The tempo may vary but the process is in place, independent of who is in charge.

It's good that the finance minister did push some comfort buttons by increasing the FDI limits in key sectors and, notably not commented on, increased the debt allocation for FII investments to $1.75 bn (from $1 bn).

The bad news is that a pair of strong reform-minded people have been so politically bullied that they have even lost the spring in their steps.

Mr Chidambaram's body language while he delivered the Budget speech had not even a faint echo of his earlier performances, and his jousting with interviewers right after the Budget betrayed his lack of belief in some of the more egregious aspects of the Budget.

For instance, the turnover tax. While the trauma in financial markets appears to be bringing some sense to this foolishness, the entire incident not only undermines the policymakers' credibility, it also betrays a total lack of understanding of how financial markets work and, critically, of how important financial markets are to risk management and growth.

The real concern is that the current finance team includes minds, which "" supposedly "" had developed, over the past decade or so, a reasonably sound understanding of financial markets.

Then, of course, there was the jugglery of accounting for the inflows from the state government debt swaps but not the outflows. I hasten to add that this is not new "" rather a continuation of a practice started by the previous finance minister, and, to be honest, a sterling feature of Budget-making everywhere in the world.

The issue, however, is that with the global interest rate environment quite dramatically changed since, say, two years ago, markets will look a lot more closely at fiscal responsibility, and this may prove to be a dampener on investment inflows.

More germane to my point, though, is how poorly Mr Chidambaram "" usually a suave and persuasive debater "" was able to defend this attempted sleight of hand.

Again, the Budget placed huge reliance on existing "" and some to-be-created "" institutions to ensure delivery of value to the "suddenly discovered" constituency of the poor.

Now, all of us are aware of the efficiencies of existing public sector institutions and, while certainly there have been some instances of dramatic turnarounds "" for example, Indian Bank "" the mood of the Budget did little to convince me, at least, that we will see such changes in expenditure efficiency on a wide scale. To be fair, however, I do believe that the new focus on NGOs and self-help groups will provide some vitality to the efforts.

On balance, I would have to say that the Budget was reasonably good in terms of proposals and, particularly given the expected good monsoon, we should have little difficulty in hitting 7 or 8 per cent growth this year.

As I said earlier, though, I feel that the energy level, the enthusiasm of the "dream team" seems much diluted and we could see some stickiness in decision-making going forward.

The tragedy is that, politically speaking, the dream team did not need to kowtow as much as it did. While I was watching the Budget speech, I was struck by the fact that the ruling coalition has no opposition "" certainly no consolidated, effective opposition.

The BJP appears to have dissolved into the ground and, with no nodal point, there isn't "" and will not be "" a coalesced opposition to the current government. While I recognise that it has bedfellows it has to cuddle and caress, I believe that a more confident coalition leader could have played its cards more strongly.

Perhaps, they are playing "" a la Sonia Gandhi "" a waiting game. The Budget has devolved increasing amounts to the states and, perhaps, this largesse will be used as a way of increasing support at the Centre so "" and, hopefully, by the next Budget "" they will be able to kick the crusty Leftists out of bed.

And, then, maybe we will see the real Mr Chidambaram.

jamal@mecklai.com