The budgeting of India

Lo and behold! Soon the day of reckoning will be upon us as the Finance minister of India, Nirmala Sitharaman, rises in parliament on February 1 at 11:00 am, Indian Standard Time, to present the budget of the Government of India. The day of the budget speech precedes delusional consternation in the media and public. The conundrum of the government being the mai-baap Sarkar of its citizens who demand for freebies and goodies leading upto the day of the budget speech in the form of subsidies, relaxation of duties, the removal of either the short-term or long-term capital gains tax and the raising of individual income tax slabs has not eluded the political, social and economic landscape of India. In the bygone days, the Finance minister would pose with a black briefcase before entering the hall of the parliament amidst a cheering volley of photographers and journalists. Now, the Modi government has remodeled the scene as presenting the Indian Khata Bahi. The presenting of the budget of the Indian Railways would precede this euphoric scene by a few days but this old custom has also been retired to the yard. The making and drafting of the Union budget is a secretive exercise that starts with quarantining the North Block or the Finance ministry from outside visitors and media-personnel for about a month from the day of the budget release. It is a tedious exercise and painstakingly infused with conscientiousness. Otherwise, it is wonderful how this elephant-like economy of the country of India rolls along like a well-mechanized juggernaut into the uncertain and wavering times of the future.

India has struggled and succeeded in building, nurturing and maintaining traditions and institutions just like it does with its own social, religious and cultural customs- tweak and play but continue, advertise and commercialize but romanticize. The Planning Commission, an institution drawing 5 year plans of progress and development, the remain of the License Raj and of the amiable times of the cold war era has been dissolved without much ado. Slowly, kerosene subsidies are discussed less, incentives to the Information Technology sector lesser, unemployment allowances, subsidized farm inputs and defence budget “over-spending” rarely but fiscal prudence, climate and manufacturing increasingly more. The budget over the years encapsulates the story of a budding and developing India- its priorities, its dreams and its peculiar obsessions in demanding “relief” from the government. 

The Indian economy is mostly domestically driven, meaning it is driven inherently from internal machinations of produce, exchange and trade within the country. The use of cash inspite of the Notebandhi or demonetization some four years back, renders it largely proof from external mega-shocks like “too big to fail” financial enterprises failing and the “too big to stop” world screeching to a halt due to the corona virus pandemic. Indians are masters in the usage and quick conversion of electronic-money into wads of cash and vice-versa. Due to this, at the worst, I believe, India can only be afflicted with “stagflation”. Stagflation is when the economy remains stagnant, unemployment rises but inflation speeds up. It occurs when the government increases the money supply in the market or one can read- when it increases spending by itself while paying bills on its own rather than pumping the money into the pockets of the public for them to spend and multiply the GDP. The tweaking of the money supply in the market so that it reaches the low-income sections of the society who spend with a multiplier effect is the key to tackle stagflation. Let people spend by changing their habits to save money.

The RBI (Reserve Bank of India) and the government are often at loggerheads in devising and executing policies to control inflation and fix interest rates to control money supply in the market. While the RBI seems to behave more responsibly in tackling its mandate of keeping inflationary pressures in the market under check, the government always adopts a more optimistic approach in increasing money in the market to pump up the economy. This is the opposite of what is to be expected. Maybe the government does not survive from election to election and is too busy with the business of governance.

Interestingly, a strange situation has arisen. Banks in the country that are saddled with NPAs or Non-performing assets (read: loan defaults) are flush with cash during and after the easing of the coronavirus pandemic. The gap has widened in the past one year- between the repo rate or the rate at which the RBI lends to banks in need of cash for daily operations and the Bank rate (or the MSF: Marginal Standing Facility) or the rate at which banks lend to each other in need for cash for daily operations. India is facing a situation where banks just won’t lend and will play safe, parking their money in the reverse-repo facility provided by the RBI and the long-term bonds issued by the government after the coronavirus pandemic. 

The budget, I hope, begins to dig into the public’s savings and makes them spend. After all, the mai-baap Sarkar ought to get the privilege of deciding what and how much you save, spend and how you do it if it also does so for itself. 

Ronak Deepak Choksi
Ronak Choksi is a business partner in his firm, J K Jewellers, a more than 100 years old business firm in the city of Bharuch. Ronak completed his schooling from Chanderbala Modi Academy and then completed his Undergraduate studies from Purdue University, USA. He graduated with a Bachelor of Science degree in Accounting with concentrations in Finance and Philosophy and a certificate in Entrepreneurship and Innovation. Later, he pursued a MBA-Financial Markets from Bombay Stock Exchange Training Institute Limited, Fort, Mumbai for a year. Ronak has many professional experiences varying from working as a Food Service employee, a mentor and supervisor in Career Services, in Investor Relations in a Fortune 500 company and is now currently engaged in the retail jewellery business since 9 years. Ronak nourishes many interests and pursuits in different areas from Literature, Languages, History, Politics, Religion, Spirituality and Travel. He continues to be an engaged and contributing member of his community.