By Indian standards post-liberalization, and especially by the standards of the Modi government’s pre-pandemic budgets, Budget 2023 is huge: 14.9% of GDP. The government proposes to use its Rs 45 lakh crore expenditure heft to not just boost growth but also to expand the presence of the state to sectors that had escaped its reach. Whether this is a good thing, or a bad thing will depend on the observer’s ideological predilections.
Those who have been parroting the line that India’s technology services industry became a world beater because it grew without government interference should rue this development. Those on the Left, who routinely condemn any dilution of the state’s role in any part of the economy as a sell-out to neoliberalism, should welcome it.
Those who see the wrangling over green subsidies between the European Union and the United States, as well as over the US Chips Act that gives gargantuan subsidies to those who set up advanced silicon fabs in that country, and note the subsidies fabs get in Taiwan, South Korea, China and Japan, would welcome India joining the new global turn towards preferring industrial policy over pure market forces.
Of course, the pandemic saw all governments embrace state activism in providing succour to pandemic-hit people. We are not talking about the state rushing to the aid of a stricken economy during an emergency. The emergency is over, as the Economic Survey has pointed out. In areas that, from the market-friendly perspective most vocal supporters of the present government espouse, deriding India’s five-year plans as naïve socialism, the government wants to carve out a role for itself where none existed.
The Fine Print
Of course, the Budget’s Rs 13.7 lakh crore outlay on capital expenditure, including grants in aid, would mean the state playing its traditional, if expanded, role in key infrastructure such as roads and railways. This is par for the course.
So is the expanded outlays for defence procurement and Research and Development in the armament industry. India will have to continue to allocate the bulk of its defence outlay to things other than capital expenditure. Capex is only 29 percent of the defence outlay.
It went up 7 percent, even as the total defence outlay went up 13 percent, meaning capex as a share of total defence outlay has shrunk. The only way India can boost the power of the punch it throws with truncated capex is to procure locally, without compromising on quality. This is a golden opportunity for Indian industry to expand its role in manufacturing high-end armament.
The government is keen to invest Rs 79,000 crore in affordable housing. The government builds and gives homes to the homeless poor. The idea is fundamentally misconceived. Young India is increasingly on the move, migrating to wherever opportunity beckons. They need to find affordable rental housing wherever they go, not own homes in places they leave behind as they seek their itinerant fortune in towns.
The government should be constructing affordable public housing as rental accommodation, so that the urban poor can live in decent homes rather than in slums and still be reasonably close to their place of work. The rents paid by the poor in the unregulated settlements of India’s metropolises are often higher, per square foot, than the rents paid by their employers in gated communities. The way out is publicly-built rental homes, on which reasonable rents are charged to finance their construction and maintenance, not handouts of homes to a lucky few.
In housing, the government wants to offer paternal solicitude rather than market-enabling public infrastructure.
A Finger in Every Pie
The government wants to set up 100 research centres to develop 5G services. Is this really a core competence of the government? Services have to be commercially viable. Private players have a better sense of what kind of service that makes use of 5G’s low latency and large throughput will have commercial application, not eager-beaver geeks fresh out of college or sterling specimens of our scientific bureaucracy.
It might be recalled that when the government entrusted the task of finding out if Huawei routers had any hidden backdoors through which the Chinese government could access the data flowing through it, the agency, lacking its own expertise, put out bids for procuring the expertise and nearly awarded the contract to, who else, Huawei itself, till the government put its foot down. This was, of course, more than a decade ago, but government outfits and universities have seen not much effort go into developing telecom technology to a level where China would notice, leave alone sniff at. The government can play a useful role in developing telecom technology, at the level of basic R&D, not commercial applications of a technology already rolled out and embodied in kit developed and sold by external vendors.
The world is in an exciting phase of biotechnology innovations, with new gene editing technologies and artificial intelligence forecasts of the shapes of 220 million proteins available in searchable databases. India has a fair crop of biotech scientists. Plenty of Indian origin scientists work at cutting edge research in biotech labs across the world.
The challenge is to attract them to India, blend them with domestic talent, fund them well and give them total autonomy. If, instead, the government wants, as proposed in the Budget, to bring them under the control of the bureaucracy of the Indian Council of Medical Research, that is a state foray that will go nowhere. But the point to note is that the state wants to not just fund and incentivise biotech, but also gain institutional presence in the sector.
In logistics, to ease the transport of steel, coal, fertiliser and foodgrains, the government wants to invest Rs 75,000 crore, of which a mere fifth is to be forthcoming from the private sector. Yes, there is a case for imaginative coordination of the building of links to clear bottlenecks and build last-mile or first-mile connectivity, but why should the government be the one to do 80 percent of the investment in sectors with direct commercial outcomes?
The urge to spread extends to shopkeeping. Every state is supposed to set up malls to showcase specialist local produce. The malls are supposed to be called Unity Malls. The government wants to leave its imprint on nursing schools, coarse grains and self-help groups.
This government has a weakness for schemes with evocative names all pre-fixed with Pradhan Mantri. Euphonic schemes proliferate and extend to every corner of the citizens’ life, and some part of the state comes limping in their wake.
The Budget has, to its credit, dispensed with at least one hollow slogan: minimum government, maximum governance. Its undeclared motto would appear to be Maximum Government for Maximum Economy.
This article was first published by Money Control as Budget 2023: On to commanding heights and every hillock in sight on February 4, 2023.
Read more by the author: India’s Economic Survey Omissions: Identifying Constraints and Making Recommendations.