With some of its biggest spends in critical developmental areas like healthcare and infrastructure, Prime Minister Narendra Modi’s government has presented, in a sense, his version of the New Deal after a historic health crisis during the Covid-19 pandemic.
Most Budgets, the good ones at least, ask, and aim to answer, a series of fundamental questions on one key issue—what would fuel growth in the future? But after an impossible to predict pandemic that shut down the world and sent economic activity tumbling down, that is not enough.
Some more radical change is needed.
Between 1933 and 1939, American President Franklin D. Roosevelt announced a slew of government expenditure, especially in infrastructure, and economic reforms, which transformed the U.S. economy, creating a job swell, and a trickle down of prosperity at the grassroots. Famously the New Deal offered 3Rs—relief, recovery, and reform. Relief for those who needed urgent economic support, measures to bring the economy back to the normal gear after the early years (1929-33) of the Great Depression which the economist Milton Friedman called the Great Contraction, and major financial reform, including a banking makeover.
The economic contraction of the Great Depression is comparable to what happened to the shutdown experienced by global economies during Covid-19. In response, Finance Minister Nirmala Sitharaman has announced a 137% increase in the health budget. Of this, ₹64,180 crore is for the PM AtmaNirbhar Swasth Bharat Yojana, which targets interventions at every district of the country. The combining of AtmaNirbhar Bharat, an effort to build India’s industrial base, with the idea of mass good health is important because it underlines that which has not been adequately underlined since India started opening up its economy in 1991—growth and the health of the population that fuels that growth must go hand in hand.
Whether it is the creation of a ‘bad bank’ to put together and tackle problem loans, or the extension of the Ujjwala cooking gas delivery programme to 10 million additional beneficiaries, or the sale of two public sector banks, the ideas of recovery, relief, and reform are clear.
Whether it is in roads or railways, the proposed capital expenditure has been pushed up sharply in the Budget, and at the same time, the government has suggested that it would look towards disinvesting two public sector banks. It is, as the finance minister said in an interview after the Budget, not that the government does not want public sector banks—it is that it wants profitable public sector banks, and not have to keep bank-rolling dud ones.
What is the larger message of this Budget? It is that the government is determined to make that 11% prediction for growth next fiscal seem conservative. It is willing to spend significant amounts in all the critical areas—from vaccines to roads and railways, and even cooking gas.
One of the most interesting elements of the Budget is the emphasis for asset monetisation. India is replete with organisations—often state-run, some functioning, some not—which are sitting on vast quantities of land which if rejuvenated could transform the present and future of Indian urbanism.
But even more important than that, a focus on such rejuvenation forces the country to face the one big question which is often left unaddressed: How can India raise productivity? From agriculture to state-run airlines, the story of Indian productivity leaves many an issue unanswered, and what the country needs—and what the Budget seems to have accurately zeroed in on—is that boosting productivity is critical.
Therefore, the emphasis on everything from artificial intelligence and digitisation (this was also the first Budget read on a digital tablet rather than on paper) to the focus on production linked incentives and further tax benefits for startups.
Productivity, as the study of economics reminds us, is the critical x-factor in growth. After all, output is not merely the byproduct of labour and capital but also of productivity (usually a leap in technology). It is often not remembered that Roosevelt’s New Deal not only gave a major supply side push to infrastructure, but it also triggered a jump in the introduction of technology. One of the most interesting things I have read on this is the impact on American bakeries. Ellen Terrell, a Business Reference Specialist in the Library of Congress Science, Technology and Business Division has written:
“In 1929 this industry raked in just under $1.3 billion. By 1933, it had dropped to just $885 million with 40,000 employees laid off. Of course, the decline in revenue was due mostly to the Great Depression, but increased competition for the limited customers was a factor as well. What is interesting is how the industry was divided. Between 1929 and 1933, the number of bakery shops dropped from 30,000 to 25,000. Of those 25,000, 15,000 were handcraft shops while the remaining 10,000 were mechanical shops. However, there was a big difference in employee numbers. Handcraft shops employed about 37,500 people while mechanical shops employed over 112,000.
"The increased efficiencies in baking machinery and other new technologies changed the industry. First, mechanical ovens and other new equipment meant that mechanical shops absorbed much of the bread making business. Second, sliced bread in the grocery store had a longer shelf life, limiting the small bakery to rolls, sweets, and specialty items. Additionally, the installation of industrial ovens in chain stores furthered their ability to mass produce cheaply and grocery stores became increasingly self-sufficient.”
This Budget is Narendra Modi’s New Deal because it correctly analyses India’s productivity predicament, and provides a 360-degree solution of spending, pruning, and use of better technology to leap into high growth.
Views are personal. The author is a historian and a multiple-award winning author of nine books.