Political prudence, fiscal responsibility

In his plenary session at WEF summit at Davos 2018, a first by an Indian Prime Minister, Narendra Modi inter alia emphasised that going beyond improving merely the Ease of Doing Business (EODB) rankings, his government shall henceforth be focusing on furthering Ease of Living (EOL) for the common man in what is seen as the latest slogan for better governance. Personally, I couldn't have been happier as I had proposed this innovative concept first in 2015 to a public policy think-tank and then in April 2017, in a series of tweets to Hon'ble PM, I had delineated this concept in brief and requested him to earnestly consider the suggestion of moving beyond 'EODB' to 'EOL' and also preparing an EOL index to essentially capture multiple parameters whereby the Government affects the lives of people. These could include provisioning of various services like subsidies, PDS etc. to the common man, amount of disposable income, access to basic facilities like healthcare, education, clean water, sanitation, electricity, etc. It shall basically monitor the economic, social, and physical well-being of the common man. Using the random sample survey techniques, one could measure a baseline and then monitor the improvement in "Ease of Living" at the bottom-tier. It shall also point out the shortcomings in various schemes or regions where the desired impact is not being achieved. Over a period of time with regular data collection, monitoring and feedback EOL index shall concentrate on improvements and deficiencies at the bottom tier, whereby mid-course policy corrections could then be done.

The Union Budget of 2018 is the first major policy document announced after the aforesaid session at Davos, which has brought the policy focus on the unserved, yet most deserving majority population reeling at the bottom and lower middle tiers of the economy. A focus on EOL has the potential to turn the entire policy framework upside-down by correcting the hitherto misaligned priorities. After all, to a common citizen for whom having two adequate meals a day is a major challenge, wouldn't be impressed by the fact that how many days would it take to open or close a company in India. It is not the case that improving the business environment is unnecessary, however, this 'trickle down economics' alone isn't able to serve the needs of a vast majority in any effective manner as the experience in last 70 years has shown.

Coming after the twin shocks of Demonetisation and GST and in wake of General Elections in 2019, one could have expected the Government to dole out largesse to the poor, middle, and rich classes alike, without worrying about the dynamics of the fiscal prudence. None of that actually happened. Launching the world's largest government health assurance scheme, Government has signaled its intent of providing a social security net to its citizens, something which had been missing all this while. The health protection scheme aims to insure the poor population for up to 500,000 rupees (roughly $8000) per family a year for almost 500 million citizens, a mind-boggling number by any standards. This is an audacious attempt, one which shall require major financial commitment from the public sector, tapping of the private sector for financial as well infrastructural needs and a well drafted, fraud-proof implementation strategy. A back-of-the-hand calculation suggests that roughly an amount of 20,000-25,000 crores per annum would be needed to honor the commitment. Though only Rs 2000 crores are allocated initially, a stronger and justified step would have been to fund this entire amount through disinvestment of 9 per cent of GoI holding in ITC, a cigarette manufacturer which would have easily fetched this amount for the initial year, before the tax buoyancy of GST kicks in following years.

Responding to the agrarian crisis, the MSP for crops across the board has been hiked to 50 per cent over the production costs, a decade old recommendation by Dr M S Swaminathan. This shall ensure higher cost, plus remuneration, and also control the lopsided production of only few crops. Other major initiatives like investing in expanding the irrigation potential, affordable housing for the marginal sections, construction of toilets, provision of electricity to all households, bringing fibre-optic broadband to all the villages, and supply of cooking gas to millions of households, are all the 'EOL furthering' measures which not only shall improve the disposable income of the poor and thereby lift the consumer demand, but also makes life easier for millions by serving the huge hitherto unmet needs.

Plugging the revenue losses, the Budget has re-introduced long-term capital gains on sale of equities which was yielding almost $60 Billion tax-free profits mostly to wealthy and big investors. The exemption provided to small investors of 1 lac tax-free LTCG and grandfathering of Capital gains for all sections, ensures a very fair re-introduction of the tax. Simultaneously the corporate tax rate has been reduced to 25 per cent from 30 per cent for while of MSME sector, covering 99 per cent of the firms. Senior Citizens have also been given multiple reliefs in their tax spending including interest income and healthcare expenses. Amongst all these prudent measures, one could almost feel sorry for the most compliant salaried middle-class population that has born the maximum brunt yet felt left out from being given any relief in taxes. A meagre standard deduction was more than taken away by increase in Cess to fund the health scheme. However, the middle class would do well to remember that in last three years, the government has effectively controlled inflation, lowered the interest rates, and slashed the minimum slab of taxation to 5 per cent. Thus, any more indulgences would have only fattened the fiscal deficit, thereby affecting the already rising bond yields.

Overall, I would infer that this Budget is a reformist, citizen-friendly and a very sharp focus on improving 'Ease of Living' as has been reflected in this budget, shall be the biggest game changer in medium to long term. All these innovative measures have the potential of creating self-sustaining and virtuous cycles as they are demand-driven and the only glitches that one can foresee are on the supply side bottlenecks which must be taken care of with advanced planning and roping in all the stakeholders including the private sector. Taken to a logical conclusion, an 'EOL furthering' vision of the Government would usher in an era of empowerment at the grassroot level and it could very well serve as a template for all other similarly placed nations to follow. Victor Hugo once remarked that 'No force on earth can stop an idea whose time has come' And It is time for governments across the globe to work towards making the lives of billions at bottom tier worth living.