Maybe a Man? Maybe an Elephant? It’s Always the Economy Stupid!

While reading out the budget proposals for 21-22, Finance Minister Nirmala Sitharaman crowed several times that there are no new taxes. It reminded me of Vice-President George H.W. Bush, the 1988 Republican candidate for US President, who proclaimed at the nominating convention the famous words: “Read my lips, no new taxes”.

These words defined his next three years and the US economy, which cried loudly for a spending boost and hence higher taxation, tanked. His 1992 opponent was Bill Clinton whose campaign manager had the words: “It’s the Economy Stupid!” printed and pasted on every desk of Clinton’s election office. George Bush, whose tenure saw the collapse of the Cold War and a huge military victory in Iraq, lost the Presidency to Bill Clinton after just one term.

Even in a much poorer country and smaller economy such as India, in the ultimate analysis it’s the state of the economy that determines political longevity. But Prime Minister Modi’s hucksters kept repeating all day yesterday and the day after that even a huge contraction of the economy and despite tens of millions of migrant workers being rendered jobless and homeless in one massive drop of the guillotine with the March 21, 2020 lockdown, Modi won the state elections in Bihar later that year. But did he?

The NDA polled 34.86% of the popular vote while the Tejaswi Yadav led UPA got 36.20% of the popular vote. The NDA came to power with a very slim majority in the assembly and the margins in as many as 11 seats were by just a few hundred vote. So to believe that Narendra Modi always wears a Teflon suit is quite erroneous. It’s always the economy stupid.

But were there indeed no new taxes? Not only are there no new taxes for annual incomes below Rs.15 lakhs there are reductions. But for those with incomes above Rs.2 lakhs per month the new taxes impose a substantially higher burden. For a person with an annual income of Rs.26.5 lakhs the tax burden increases from Rs.3.40 lakhs to Rs.5.30 lakhs, or an increase of almost 60%. This is not small change.

There are taxes beyond IT, which are borne directly by taxpayers, such as those on petrol and diesel. Petrol will now cost Rs.2.50 more per liter, while diesel will cost Rs.4 per liter. There will necessarily be a cascading effect on the economy. The transport sector consumes 72% of the diesel refined in India so the 5% increase in its retail prices will have a noticeable ripple effect. Every lower middle class household will have at least a two-wheeler and higher petrol prices will be felt. Think of the consequences to the home delivery gig economy.

Amazon, the biggest e-commerce player pays a flat Rs.10 per package, irrespective of weight, distance and volume. The deliveryman uses his own vehicle and pays for the fuel and other costs. We can now expect e-commerce goods to cost more. Individual will also have to pay more for mobile phones, motor vehicles and their imported tipple among other thigs. So why make a claim of no new taxes?

As somebody said two things are certain to go up. One is us and the other is tax.

The newspapers and TV have trotted a range of people beholden to the government, for good or bad, from Kumar Mangalam Birla to Ashok Hinduja, panoply of CII and FICCI presidents, and waiting economists to comment on the budget. All of them have hailed it as a path-breaking, visionary and breakout budget. What else can they afford to say or dare to say?

I saw Prannoy Roy hosting the NDTV budget show asking such worthies after letting them say their hosannas, whether they had anything critical to say about the budget? Without exception they hemmed and hawed and apart from desiring more for their sectors said that all is great. But not being professional actors their mortification could not be fully masked. Many decades ago Lala Charatram, then FICCI president, when asked whether he favored the budget, blithely replied: “we favor all budgets, whatever the government!”

But let us take a cursory look at the numbers. The total expenditure in FY20-21 was Rs.34.50 lakh crores. The proposed expenditure for FY21-22 is Rs.34.83 lakhs (look at page 3 of the FinMin’s “Budget at a Glance”), so where is the money for a breakout? The vision painted is a long-term vision. For instance Tamil Nadu going to the polls in a few months gets a declared appropriation of Rs. 65000 crores to build 3600 kms of highways over the next five years, when what matters to the people and the economy is what will be spent this year? Similarly, Assam and Bengal, also scheduled for the hustings soon get Rs.23,000 crores and Rs.35000 crores respectively. This is not even sleight of hand, its just political chicanery.

The government intends to increase capital expenditure by Rs.1.14 lakh crores and proposes to spend Rs.5.54 lakh crores in FY21-22. This item rose by Rs.1.30 lakh crores in FY20-21 over FY19-20, so in effect the rate of climb has fallen. But on the morning after every major newspaper lauded the increase in capital expenditure. Everybody has his or her own compulsions. Big brother is watching?

Our leading pink newspaper had a banner headline s shouting “82% jump in health outlay”. Another national newspaper screams “137% increase in health and well-being spend”. But it adds sotto voce that this increase is mostly due to bringing the drinking water and sanitation (Rs.60,030 crores), and nutrition (Rs.2700 crores) outlays, previously under different departments under one caption of “health and well-being”. True, there is and increase in outlay for heath (Rs.71,269 crores), but it is a more modest 9% increase.

When the Pandavas shouted, Ashvathama is dead. Drona, commander of the enemy forces, assumed they were referring to his son. Refusing to believe them he decided to check with Yudhishtra. Tell me, said Drona to Yudhishtra, Is my son dead? Yes, Ashvathama is dead. Maybe it is an elephant? Maybe a man? He knew it was an elephant but had been forced by Krishna to lie or tell a half-truth. In the din of the war, all Drona heard Yudhishtra say was: “Yes, Ashvathama is dead. “Clearly Nirmala Sitharaman knows here Mahabharata well.