How Modi government's Budget 2021 can help revive economy

It was music to my ears when I heard finance minister Nirmala Sitharaman say in her budget speech: “Sir, I now come to the last of one of our core principles of ‘minimum government, maximum governance’”. This was the slogan Candidate Narendra Modi had coined in the historic 2014 general election, with the explanation that the “government had no business being in business”. It gave me hope that the NDA-II government, with a full majority, would follow an even more aggressive disinvestment programme than the one the AB Vajpayee-led NDA-I attempted. Also, that it would have a more market-driven approach to solving the nation’s economic problems rather than the UPA mindset of welfarism that paid scant attention to economic growth which could pay for all the entitlements. However, soon after being elected, the Modi government lost its mojo for reform when it failed to get its land acquisition bill passed and was stung sharply by Rahul Gandhi’s charge of being a ‘suit-boot ki sarkar’. What followed for the next six years was maximum government, and more maximum government.

The bureaucratic control got stronger, overriding even ministers, enforcement agencies went on steroids and decision-making in both the private and public sector seemed struck by paralysis. Demonetisation in November 2016 did not help. The economy had already been in decline for two years when the pandemic hit. Budget 2021-22, therefore, is a clarion call for a quantum shift in India’s economic direction even though presenting a budget amid a recession is like reading a map while driving through a storm. You have a vague idea where you are headed but are unsure how long the squall will last or how quickly you will reach your destination. India’s Covid-19 curve is declining and 3.7 million people have been vaccinated so far, but its economy remains in the ICU. The double whammy of the pandemic and lockdown means the GDP will contract by 7.7 per cent this year. Unemployment has surged and small and medium businesses are dying.

The government has its hands full. It has hiked spending on health by 137 per cent—and will spend Rs 2.23 lakh crore on health and wellbeing. The budget followed what our panel of experts suggested in our January 25 cover story, ‘Now Spend Big’. The government has stepped on the pedal and hiked the fiscal deficit to a record 9.5 per cent while disclosing a welcome degree of transparency in its calculation. It has increased capital expenditure to 34 per cent of the budget. The defence allocation, for instance, has seen a close to 20 per cent increase in capital expenditure, which the armed forces will use to buy new hardware to confront the Chinese threat on the border. The government plans to jumpstart the economy and provide jobs for millions affected by the downturn. All this calls for money. Lots of it.

Necessity, they say, is the mother of invention. In this budget, however, it is more the discovery of courage—to ignore the predictable carping of the Opposition of selling the family silver. Budget 2021-22 makes a strong case for the government to monetise its assets and sell strategic stakes in the government-controlled PSUs.

The government wants to privatise ports, banks, insurance firms, the running of railways, and unlock money lodged in government-owned land banks. It has set for itself a new disinvestment target of Rs 1.75 lakh crore for 2021-22.

The government’s privatisation mantra is not new, of course. It has to be a continuation of government interventions the finance minister announced last year to kickstart the economy. Among them was disinvestment where the government said it would have no more than four PSUs in strategic sectors. The Department of Investment and Public Asset Management (DIPAM) was given a disinvestment target of Rs 2.1 lakh crore for FY21, but it expects to realise only Rs 32,000 crore. This, despite markets surging to record highs in the second half of the fiscal year and the financial system being flush with liquidity. That is the nub of the problem. Implementation.

Our cover package, ‘A Bold New Deal’, focuses on the government’s economic revival package through massive capital expenditure which not only creates jobs but also assets. This deal will be partly financed through the sale of government holdings. The government is betting on raising resources through privatisation and monetising public assets. Our bureau examines the politics behind this deal, the disinvestment strategy and the government’s plan for key sectors such as defence, health and education.

Most importantly, for privatisation, the government needs to devise a time-bound programme helmed by financial experts with the experience of such an exercise and not bureaucrats who are driven more by the instinct to retain control. The proposal to privatise Air India, for instance, was first discussed two decades ago and is still nowhere near completion. Those making such decisions also need to be protected from future prosecution. Unlike what happened to Arun Shourie, disinvestment minister in the Vajpayee government, and four others, against whom a special CBI court issued arrest warrants only last year in connection with the sale of an ITDC hotel 18 years ago. Eventually, the Rajasthan High Court had to step in and order a stay. It is enough to scare anyone tasked with executing the government’s ambitious programme.

If the government can get over such hurdles and stand by its convictions, there are rich pickings to be had. PSUs and departments like defence and railways, which have huge land banks, can monetise their surplus and add to the government’s coffers. There are 80 PSUs whose cumulative loss of Rs 81,444 crore is a drain on the exchequer. On the other hand, Hindustan Zinc, in which the government divested 45 per cent for Rs 769 crore in 2002 and sold some more equity later, yielded the government dividend of Rs 17,690 crore between 2004 and 2020 while its present stake of 29.54 per cent has a valuation of Rs 36,041 crore. Maruti is another case. Founded as a 74:26 JV between Suzuki and the government in 1982, the latter first raised its stake to half, then reduced it to 49.74 in 1992, before the Vajpayee government decided to sell it altogether in 2002. By the time the stake was fully sold in 2007, the Centre got Rs 5,928 crore. Today, the firm is worth Rs 2.3 lakh crore, the 16th most valued company by market cap, employing 16,000 people. Lifting the dead hand of the government unleashes the magic of private enterprise, of which we have plenty in India.

Nothing works like a crisis to get reform moving in our country. Tardy execution or losing your nerve are the only hurdles to the government’s plan to exit the business. Clearly, this is where Prime Minister Modi and finance minister Sitharaman have their work cut out. They will be judged not for their good intentions, but for the execution. Else disinvestment and privatisation, like several other government plans, will likely remain just that — statements of good intent with nothing tangible to show.

(India Today Editor-in-Chief's note for the cover story, A Bold New Deal, for February 15, 2021)

Also read: How India can truly become Aatmanirbhar Bharat