Two years of drought have made life hard for India’s farmers, but measures to help won’t advance Narendra Modi’s core priorities.
India's Finance Minister Arun Jaitley this week unveiled his government's budget, a document widely praised as pro-poor and pro-farmer, after two years of criticism that Indian Prime Minister Narendra Modi had abandoned his promise to bring development to the masses. But will the budget bring to India the lasting change Mr. Modi campaigned on in the 2014 general elections, in which he trounced the rival Indian National Congress? Not likely.
The budget can largely be understood as an attempt by Mr. Modi's Bharatiya Janata Party (BJP) to gain popularity in the impoverished Indian hinterland, ahead of several important state-level elections in the next two years. The right-leaning Hindu nationalist BJP has delivered a budget remarkably similar to those that the left-leaning, secular Congress party reliably pumped out year after year, as they dominated post-independence parliaments. In other words, budgets that poured billions of dollars into unproductive rural job schemes, as well as costly fertilizer and electricity subsidies, that fostered dependency and kept many locked in poverty – rather than lifting people out of it.
There are, of course, several sensible policies in Mr. Jaitley's budget. The government has proposed a health insurance scheme for poor households, pledged to ensure electricity is available universally in the next two years (better late than never), and said it wants to provide all families below the poverty line with cooking gas – instead of having them cook on smoky indoor fires that lead to respiratory diseases. There are also big – and desperately necessary – infrastructure spending plans, including about $40-billion (U.S.) for roads, highways and rail development.
On the business front, the government hopes to introduce a bankruptcy code for financial firms either this year or next. Remarkably, Indian companies currently have no formal option for declaring bankruptcy in India, leading to all sorts of messy dissolutions – including lawsuits that inevitably wind up stalled in India's clogged court system, and principals literally running away from their problems.
Mr. Jaitley has also proposed raising the foreign investment threshold in state-run companies, with the exception of banks, to 49 per cent from 24 per cent. This is in line with Mr. Jaitley's previous budgets, when he raised foreign investment limits in the defence sector, for example, but it is difficult to imagine foreign companies signing up for what would amount to minority control. There have been no big-ticket investments in defence, and it is hard to see how these changes will stir the animal spirits in foreign investors.
India's farmers, inarguably, need help. Two years of drought have been terrible for many poor farmers, as well as day labourers, but it is hard to see these measures advancing Mr. Modi's core priorities. This flood of cash, more likely, is a sop to rural voters ahead of important state-level elections this year and next, and not long after the BJP was trounced in important state elections in poor, rural Bihar (population: 100 million) late last year – a defeat that was widely seen as a referendum on Mr. Modi's rule.
Losses in state-level elections erode the BJP's position in India's upper house, and there are several crucial elections coming up this year – including West Bengal (population: 90 million) and Tamil Nadu (population: 67 million), as well as a crucial contest in 2017 in the largely rural and poor state of Uttar Pradesh (population: 204 million).
More important, it is difficult to square Mr. Modi's barnyard budget with his high-profile "Make in India" push to boost India's almost non-existent manufacturing sector. Mr. Modi is a big admirer of Japan and China and their industrial success. But his friend, Japan's Prime Minister Shinzo Abe, has risked his wider popularity by scoring controversial victories against Japanese farmers in his battle to modernize his country's agricultural sector. And past Chinese governments, of course, encouraged millions to migrate from farms to urban factories, where they traded rural poverty for high-paying industrial jobs.
Instead of taking bold measures, Mr. Modi, it seems, is once again putting off politically risky, big-ticket reforms in favour of policies that will win short-term popularity with voters.