India's 'left of centre' budget

A jobs for work programme in a village in India

Analysts say the government wants to spend its way out of the recession

Paranjoy Guha Thakurta says the "pro-poor" 2009 budget represents a discernible shift to the left by India's Congress party following its election win in May.

Budgets in India are much more than statements of financial accounts. They are important pronouncements on the political economy of one of the world's fastest growing countries.

Monday's budget presented by 73-year-old Finance Minister Pranab Mukherjee was no different as he sought to confront major challenges in reviving India's sagging economy.

It is, not surprisingly, a continuation of the Congress party-led government's left-of-centre, pro-poor and populist policies.

There will be a sharp rise in deficit financing to pay for welfare schemes such as the landmark jobs-for-work programme - which has seen a near 150% rise - in the villages and social security schemes for unorganised workers.

Modest sops

So the bulk of the money to fund all this will come from printing currency and borrowing from India's central bank. There is also an implicit assumption that some money - nearly $10bn - will be raised by auctioning electromagnetic spectrum for telecommunications and divesting minority government holdings in state-run companies.

There are a few sops for the middle class though. Modest relief has been given to income tax payers, a small (only 3% of Indians pay income tax) but influential section of the country's middle class.

Social security schemes are expected for unorganised workers

Although a few irritants for the private sector have been removed - taxes on fringe benefits and commodities transaction, for example - the country's corporate sector was expecting much more by way of bigger tax cuts. No wonder the stock markets plunged after the budget.

By and large, the finance minister has assumed that there will be little or no growth in the economy this fiscal year - he's expecting some 7% growth at the most. Hence, the government has decided to spend its way out of the slowdown.

The fact that Prime Minister Manmohan Singh is a renowned economist, has certainly helped the government devise strategies aimed at countering the slowdown that has seen the rate of growth of India's economy come down from a record 9% four years in succession to below 7% at present.

Until the 1970s, the ruling Congress party was perceived as a left-of-centre party espousing socialist rhetoric under the then Prime Minister Indira Gandhi.

In the early 1990s, the Indian government's economic policies became more market-friendly and outward looking.

'Inclusive development'

Mr Mukherjee holds the important post of finance minister because he represents the centrist space - in terms of economic and political ideology - within India's Grand Old Party as it lurched from the left (under Indira Gandhi) to the right (under Mr Singh as finance minister in PV Narasimha Rao's government).

The middle class received some modest tax concessions

Having won an election in April-May on a platform of a jobs guarantee programme in rural areas and a farm loan waiver scheme, the economic agenda of the Congress party appears to have again shifted discernibly left towards policies that ensure growth is "inclusive" by alleviating poverty and creating jobs.

The first Singh administration wrote off agricultural loans worth 700bn rupees (equivalent to $15bn at current exchange rates) and also initiated a legally guaranteed jobs-for-work programme for 100 days a year for rural families, both of which have apparently paid the Congress rich electoral dividends.

Immediately after becoming prime minister for the second time, Mr Singh said that among his main tasks was reviving the economy, creating jobs and ensuring that the benefits of growth reached the underprivileged.

Owing to the international recession, industrial production in India has declined and exports have fallen by a third.

Millions of jobs, especially in export-oriented industries such as textiles, garments, gems, jewellery, leather and handicrafts, have been lost in recent months as Western markets for such products have disappeared.

Whereas India is the second-fastest growing economy in the world among large countries after China, a substantial section of the country's 1.1 billion people is extremely poor - at least one out of four survives on less than $1 a day and more than two out of three Indians live on $2 a day.

Food security

High on the list of policy priorities of the government is the enactment of a new food security law that envisages providing 25kg of rice and wheat each month at a subsidised rate of three rupees (or six cents) a kilo to each poor family. This was one of the pre-election promises made by the Congress.

One in four Indians lives on less than $1 a day

Congress party chief Sonia Gandhi recently wrote to the prime minister urging him to enlarge the scope of the subsidised food programme to the urban poor, families headed by single mothers, artisans and those physically or mentally challenged.

The challenge for the Indian government is to meet the aspirations of the country's youthful and upwardly mobile middle classes while widening social safety nets for the poor.

The government's annual report card on the state of the economy raised expectations that controversial privatisation initiatives may be considered as well as changes in labour laws and policies on foreign direct investment in retail and insurance.

But these did not materialise in the budget proposals - proving once again that the government has opted for cautious continuity in these troubled times.

The author is a leading analyst on the Indian economy.