Expert Speak India Matters
Published on Feb 27, 2017
In 2019, when the question is posed as to what his government did to tackle corruption, PM Modi can point towards demonetisation.
#Budget2017 and #demonetisation — The PM's 2019 pitch While the primary purpose of a Union Budget is to lay down an economic statement for the coming year, it is also a deeply political document. The budget must be understood in the context of the prevailing international and domestic political and economic climate. The international climate around the 2017 budget is predictable — oil prices are unlikely to shoot up; international trade will continue to dwindle; and given the results of the presidential election in the US and the referendum in the UK, the backlash against globalisation is set to continue. On the domestic front, five state assembly elections, particularly in the two big states of Punjab and Uttar Pradesh dominate much of the political discourse.

The overarching political dynamic of the 2017 budget, however focuses on neither international scenarios nor state elections — it is squarely focused on this government's campaign for the 2019 general election in India.

And a major component of this campaign would include the government's efforts towards fighting corruption, the cornerstone of which was the demonetisation policy. It is easy to discount the international scenario around the 2017 budget. Unlike the financial crises of 2008 and 2010, no major developments in the international sphere necessitated a significant policy statement from the Finance Minister. It was, however expected (given past practices) that the government at the centre would introduce certain policy measures which would help its party's chances in Punjab and UP — indeed, there was a demand by opposition parties to defer the budget announcement until after states elections were over. However, this argument too falls short given the nature of these two elections. In Punjab, it is unlikely that BJP will come back to power given the strong anti-incumbency (the "Modi wave" which swept most of north India in the 2014 general election came short in the state and is unlikely to be a factor in the state election). In UP, there are far too many local factors that will determine the outcome — caste and religion arithmetic in light of the new Samajwadi Party (SP) and Congress alliance, performance of the SP government, the Bahujan Samajwadi Party's (BSP) ability to build on its dalit voter base, to name a few. Broadly, the government has made two attempts in the budget vis-a-vis its fight against corruption — first, it has looked to build upon the demonetisation policy, the stated aim of which was to nip in the bud the generation and flow of unaccounted for wealth. The biggest step in this direction was the Finance Minister's announcement to reduce anonymous cash donations for political parties from INR 20,000 to INR 2,000. Measures to encourage digital payments too were proposed — a payments regulatory board within the Reserve Bank of India; a review the Payment and Settlement Systems Act 2007; and incentives for merchants and individuals transacting on the government's mobile payment application BHIM. Second, it has attempted to hedge against any political fallout as a consequence of this policy. Small and medium enterprises, the real estate sector, the lower middle class, all got a favourable deal out of the budget 2017 as this was the constituency most hurt by demonetisation.

In the larger scheme of things, however, questions over the government's will to tackle corruption remain.

For instance, instead of giving a one-time "anonymous" cash donation of INR 20,000, political parties can simply accept 10 such donations worth INR 2,000. This might be cumbersome, but is hardly a big enough disincentive to be more transparent, or better still, go cashless, as the rest of the economy is expected to do. Moreover, budget 2017 has given India's already infamous revenue service even more discretionary powers — for instance, Section 132 and Section 132 (A) have been amended such that income tax officers need not give a reason for conducting a search; Section 133 has amended to empower even junior income tax officers to call for information for the purpose of any inquiry or proceeding under the IT Act; and Section 133 (A) has been amended to empower an IT authority to enter any place at which an activity for charitable purpose is carried on. Such powers are reminiscent of the 1970s, when "Raid Raj" flourished and as a result, rent-seeking among bureaucrats and politicians alike was at an all time high. Many an election in India has been on the promise of eliminating corruption. Right from the time of the Janta Party movement in the 1970s, politicians, both at the national and state level, have run successful campaigns on the claim of eradicating corruption. PM Modi's successful pitch in 2014 of Na Khaunga Na Khaane Doonga (Neither will I take bribes, nor will I let anyone in my administration do so) was therefore nothing new. Demonetisation however, gives him an edge. In 2019, when the question is posed as to what his government did to tackle corruption, the PM can point towards demonetisation. It helps build a narrative that says here was an Indian PM who took a bold policy decision, staking his government's reputation on the line, to tackle corruption. Whether this measure was effective or not is secondary — given the sheer lack of political will to deal with the problems around unaccounted wealth, sets this government and demonetisation apart. The steps announced in the budget, therefore must be viewed in the same light — they only seek to embolden the image of the Prime Minister as a 'doer', rather than seriously deal with corruption in the country.
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Gianpiero Menza

Gianpiero Menza

Gianpiero Menza Senior Manager Partnerships and Innovative Finance The Alliance of Bioversity International and CIAT CGIAR

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