It is said that desperate times call for desperate measures, and the annual union budget speech of India’s finance minister reflects this in no uncertain terms. In an economy ravaged by the COVID–19 pandemic, the government’s approach to this predicament is to spend heavily on infrastructure (including health and technology) financed in the short run by borrowing and over the long run by privatization and disinvestment of public assets. Annual budget announcements by India’s central government are an important and much awaited exercise as they covers a wide range of policy announcements including taxation, trade, health, education, and the financial sector.
What makes the latest budget unique for the Narendra Modi government is that it has received widespread praise, including a thumbs up from several of Modi’s staunchest critics across media and academia. There are features of this year’s budget speech that sharply distinguish it from the history of budget speeches over the last fifty years. The choice of words are a reflection of the intentions and concerns of the government, but there are challenges to on-the-ground implementation of what has been announced in the budget.
First, we look at specific words like “growth”, “inflation”, “infrastructure”, and privatization”. From 1970 to 2020, the average length of budget speeches have been 14,000 words, where the terms “growth” and “inflation” were mentioned on average approximately 20 and four times, respectively. In a striking contrast, in the latest 2021 budget speech of roughly 17,500 words, the term “growth” was mentioned merely four times (the second lowest since 1970), while “inflation” was not mentioned even once. Similarly, when we look at the words “infrastructure” and “privatization” (which includes words such as “divestment” and “disinvestment”), we find that in budget speeches from 1970 to 2020, the word “infrastructure” was mentioned approximately 13 times on average, while “privatization” was mentioned only twice on average. Once again, in striking contrast, this year’s budget speech mentioned “infrastructure” 57 times, while “privatization” or “disinvestment” or “divestment” was mentioned 20 times. This is further illustrated in the figures below, documenting the changes in word frequency (ratio of the number of times the word is used to total number of words in the document) over union budget speeches of India from 1970-71 to 2021–22.
The contrast from previous years reflects the intent of the government to focus on infrastructure spending without worrying about inflation; the hope is that this would be financed by privatization or disinvestment of the public assets in the long run. As vital as it may be, growth is implicit in a significant fiscal push by the government, which is to be primarily financed by the reduction in the size of government in business. Without a doubt, for an economy severely curtailed by the COVID–19 pandemic, this is the right economic policy to pursue for which the government deserves credit.
Even though infrastructure spending could provide short-term emergency relief, the transformative idea of the budget is its emphasis on privatization and divestment of public assets. As far as the budget speeches go, the word “privatization or disinvestment or divestment” has been somewhat taboo in India. It was mentioned for the first time ever in the 1991–92 interim budget on the eve of the one of the worst economic crises faced by India—which triggered years of economic reforms and liberalization of the Indian economy. “Privatization and disinvestment”, however, became a vital reform strategy of the first National Democratic Alliance government from 1999 to 2004, when a full-fledged ministry was created for such an important undertaking. In reality, ground implementation remained a political and practical challenge; so much so that in the subsequent UPA governments, headed by a supposedly reform minded prime minister, privatization, divestment, or disinvestment were mentioned only in four out of the 10 budget speeches. Therefore, what matters is whether the present government can walk the talk regarding the implementation of privatization and disinvestment of government assets.
In analyzing budget speeches over the years, we also discover one trend which is remarkably consistent—it is the increasing use of word “digital”. India is a fast digitizing economy across sectors including banking, health, education and public services. As is reflected in the annual budget speeches, it has particularly gathered steam in the last six years on the back of Digital India campaign which was launched to strengthen connectivity and improve online infrastructure across the country. It is important to note that improvements in people’s access to public services in India (e-Sewa for passports, vehicle registration, tax filing, payments for utilities etc.) has largely been on the back of rapid digitization. It is not surprising, therefore, to see greater significance of “digital” in annual economic strategies of consecutive Indian governments over time.
Interestingly, the real obstacle to its ground implementation will not come from left-leaning socialist political opposition but from the courts. This is best illustrated with the most recent example of the order of the special Central Bureau of Investigation (CBI) court in Jodhpur district of Rajasthan. In October 2020, the court registered a criminal case against the former Union Minister, the Secretary of Ministry for Disinvestment of the first National Democratic Alliance government, and the private parties that were involved for prima facie evidence of criminal conspiracy and cheating for the 2002 sale of a luxury hotel. What made the order intriguing was that CBI had already submitted a closure report to the court stating insufficient evidence to launch any prosecution. Despite this, the special CBI court issued the order. This reflects the real cost of making decisions on sale of public assets in India. Government officials fear that decisions made decades ago, while following all due processes, could come back to haunt them, tarnish their reputation, and wipe out years of goodwill and hard work.
It is beyond doubt that the private sector will primarily enter to make profits; it’s naïve and almost foolish to assume otherwise. With the sale of government assets, particularly when markets for those assets are thin or not well defined, there will be room for supernormal profits (and in some cases losses as well). However, if the norm is to view all profits with suspicion, then, unfortunately, the private sector would be hesitant to enter, and the bureaucracy would be circumspect in bringing the desired change. Even if the government can surmount the socialist political challenge, it will have to take the bull by the horns and confront bureaucratic indifference and resistance to change, which is imposed not only by its conservative attitude but also by the costs of making decisions that could come back to haunt it in the future by courts.
In summary, the government of India’s latest budget is indeed a unique budget—and given the circumstances, it rightfully emphasizes infrastructure spending via privatization and disinvestment as a key strategy for economic recovery and future growth. However, if “privatization and disinvestment” is to become a watershed moment of Indian economic reforms then it needs protection from the courts in the future.