What India’s latest budget won’t tell you

This weekend, finance minister Arun Jaitley will present to parliament the budget for the year 2015-16: an exercise in accounting and planning, for an economic unit that encompasses one-fifth of mankind, that has been repeated annually (and sometimes more than that) since independence.

add_main_imageAs on all previous occasions, the budget will allow the government to emphasize that it remains the most powerful player in the Indian economy, newspapers to produce a wealth of read- this-now headlines (“Cigarettes to get expensive”), and the opposition to levy, almost immediately, the hoary old charge that the budget is “anti-poor” and that the government has become a stooge of one or all of the following entities: multinationals, neoliberalism, the International Monetary Fund, the World Bank or the country’s corporate czar (fill in with the name of your choice).

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Stock markets will be open for the occasion, for the first time on a Saturday in many years. In a country that is still nominally socialist, the budget is always read, well beyond the specifics of policy, as a coded message about how supportive the government of the day intends to be when it comes to markets.

But precisely because Indian democracy has historically aligned itself so self-consciously with socialism (this includes Prime Minister Narendra Modi’s government), the annual budget is rarely where the most interesting or candid thinking about the state of the economy is to be found. Rather, the budget often serves as the stimulus for alternative views of government spending, taxation and enterprise that emerge in response to it: a kind of large, slow-moving prey that draws out all the hunters in the forest.

One might frame the whole matter this way: If the Indian budget (and therefore official Indian economics) comes from bureaucratic New Delhi, then the best criticisms of the budget (and the vision of more liberal, market-friendly Indian economics) have historically come from mercantile Mumbai, the country’s financial capital.

When I was growing up in Mumbai (then Bombay) in the ‘90s, the most important rhetorical occasion in the city’s economic life was not so much the budget speech in Delhi but the speech that followed immediately afterward as a commentary upon it. It had been delivered every year since the late 1960s by the great Bombay lawyer and tax expert Nani Palkhivala, and its audience was so vast that there was no hall big enough to house the audience of small-business people, stock-market investors, chartered accountants and white-collar workers who thronged to hear him speak.

So in the ‘90s, Palkhivala gave his annual post-budget speech in a sporting arena: on the grounds of the Cricket Club of India in south Bombay. Before the advent of 24-hour cable television (which now subjects every clause of the budget to a vast amount of verbiage, too much of it banal and badly worded), this was the best way for laymen to grapple with the great economic questions of the day, such as whether increased levels of taxation actually led to increased revenues, as well as such small, practical matters as where to park one’s savings to avoid taxes.

It would not be out of place to see Palkhivala’s audience as a kind of intellectual counterculture longing for the day when India would be more capitalist in its orientation, wanting to call out the futility of the state’s whimsical yearly tinkering with direct and indirect taxes in a renewed effort to redistribute a somewhat static whole among an ever-increasing population, and wishing that mainstream Indian economics would rekindle the country’s history as a great center of world trade and give up the bad arguments concealed in the high-minded language of state planning and “pro-poor policy.” After all, they had all grown up in a country that in the ‘70s thought it entirely rational to set the maximum limit of income tax at 97%, and they were used to governments that treated stock-market profits as “unearned income,” to be taxed even higher than “earned income.”sixthMAds

Today, almost 25 years after the liberalization of the economy, the center of official Indian economics has indeed shifted rightward. As the liberal economist Arun Shourie said recently, the view of economic contrarians in the 1960s and 1970s—represented in intellectual circles by people such as Palkhivala and his great predecessor A.D. Shroff (head of the Forum for Free Enterprise) and in politics by the now-defunct Swatantra Party, which stood explicitly in opposition to the ruling Congress Party and its confused socialism—has now become mainstream. What was once a counterculture is now just common sense. As a result, the finance minister’s annual speeches have changed, as Deepak Shenoy wrote this week, “from being openly socialist to apologetically capitalist.”

Fifty years from now, economic historians looking for truthful assessments of India’s economic situation in the early years of independence might look not so much to the budget speeches of the time, but speeches about the budget speech, such the great one given by Shroff 50 years ago. That speech, and many other documents recording a neglected tradition of indigenous Indian liberalism (and even libertarianism), is now one of hundreds of fascinating documents available on a new website, IndianLiberals.in—an invaluable source of thoughtful dissent, much of it coming out of Bombay, from the sloppy and self-congratulatory thinking that for so long made the country both “pro-poor” and poor. Bloomberg