Pragmatism marks a good finance minister from a bad one, and it was clear that Arun Jaitley preferred to be on the right — not in the ideological sense — side. As leader of opposition in Rajya Sabha, he criticised his predecessor P Chidambaram and the Manmohan Singh government on two counts. It was the BJP’s stance, when in opposition, that the UPA government was using the global economic recession as an alibi to hide its failure to take the economy back on the high-growth rate trajectory, and that Chidambaram cut expenditure to contain both current account deficit as well as fiscal deficit, and that this did not augur well for the revival of the economy. Of course, Jaitley and the BJP did not dare to be Keynesians and say let the economy grow and deficit be damned. It seems that on both counts, Jaitley thought that discretion was the better part of valour.
In the prefatory remarks of his Budget speech, Jaitley took a serious note of the state of the world economy, and cited the International Monetary Fund’s projection that the world economy will grow by only 3.6 per cent in 2014, a slight improvement over the three per cent growth in 2013. He acknowledged that the performance of the US economy is crucial for the global economic recovery, and though there were green shoots of revival he conceded that the uncertain state of the global economy is part of the headwinds that India will have to negotiate on its road to high growth rate. There is then this shift in stance in the BJP, now that it is in power, that the Indian economy cannot do well if the world economy is far from being robust, if not unwell. Jaitley was also not too sanguine about foreign fund flows that will help boost activity in infrastructure. The BJP’s bravado when in opposition has been wisely abandoned in favour of wise caution now that the party is in office and finds itself entrusted with responsibility.
The second major issue where Jaitley was willing to keep to the Chidambaram line was to keep the current account and fiscal deficits down. He did not find fault with Chidambaram for cutting down on expenditure to do so. As a matter of fact, he accepted the Chidambaram targets for reduction of fiscal deficit to 4.1 per cent in 2014-15, and to cut it down to 3.6 per cent in 2015-16 and three per cent in 2016-17. He has almost committed himself to prudence over populism, and invoked “inter-generational equity” where future generations cannot be burdened with the debt of the present generation’s unthinking expenditure. In what appeared to be an overall timid approach, this aspect of not going beyond one’s means, what can be described as the middle class ethic, is a bold stance. He has shown an increase of 26.9 per cent in Plan allocations, and has managed to peg the fiscal deficit at 4.1 per cent and revenue deficit at 2.9 per cent. He did not explain whether tax collections have improved considerably to keep the deficit on a leash.
The other aspect of the philosophy of prudence that Jaitley has embraced is the announcement on the setting up of the expenditure management commission, which seems a nice idea though it could prove to be superfluous because expenditure needs to be managed by each ministry and by those implementing each project. But it makes the intent clear.