Context is very important for policy. There are additional challenges to economic growth, including uncertain global trade, dollar outflows, a new low in the rupee, and rising oil prices. Also important for growth is the level of the deficit, which defines borrowing costs and the debt-to-GDP ratio.
The Indian government aims to improve its sovereign credit rating and aims to reduce the fiscal deficit to approximately 4.5% of GDP. Much depends on your spending room. Members of the Prime Minister’s Economic Advisory Council estimate that if growth, expenditure and revenue all remain constant, the government will have around Rs 1 billion available for plans to revive the economy.
The outrage echoing across the world on WhatsApp reflects expectations for lower income tax and GST rates on everyday consumption. The state government has spent over Rs 4.7 billion on subsidies, including over Rs 2 billion in cash transfers to women alone. The expectations are simple. The middle class who pay taxes believe they are entitled to a portion of the taxes collected. Call it a tax rebate that funds programs that propel political parties into power.
This dilemma is what economists Horst Rittel and Melvin Weber called the “wicked problem.” Let’s not forget that inflation, economic slowdown, and its effects are also felt by the poor, raising expectations for poor relief schemes. At best, the middle class can hope that this budget will stimulate growth as a solace. Whether these hopes come true depends on economics.
In his book Politics, the polymath and philosopher Aristotle argued that “a political community controlled by the middle class is best.” He observed that “throwing in that weight shakes up the balance” and prevents extreme outcomes. This theory has been shunned in India by the algebra of economics and the arithmetic of politics. The middle class is stuck in a political turmoil between oligarchies that exploit rents and political parties that exploit rents for votes.
Shankar Aiyar
Author of The Gated Republic, Aadhaar: A Biometric History of India’s 12 Digit Revolution, and Accidental India
(shankkar.aiyar@gmail.com)
