Economy can’t be good when governance is bad

The budget speech of Finance Minister Ms. Nirmala Sitharaman was the shortest by her own standards but it was not short on praise for the economy, particularly for the nine years that the Modi government has been in power. The world, she said, has recognised India as a “bright star”. The Indian economy is on the “right track” and we are “heading towards a bright future,” the Minister noted, setting the tone for what will be the last full budget of Prime Minister Narendra Modi’s second term. The FM’s good words and fulsome praise are understandable.

The budget speech after all plays a key part in preparing the optics and setting the narrative. It is important to note the narrative. It is equally important not to be swept away by it. The last full budget is a good time to take stock of where we are and what the tenure has given us, recognising equally that the economy has faced immense challenges in the face of the waves of Covid-19 that brought death and devastation of families.

While the budget is a lot about numbers, and they must surely be analysed to see if the government commits in financial numbers what it says in words, what is equally important is the principles with which the government works and how it signals to market players, internal and external. For example, the FM did well to note the words of Prime Minister Narendra Modi on governance: “Good governance is the key to a nation’s progress. Our government is committed to providing a transparent and accountable administration which works for the betterment and welfare of the common citizen.”

Poor regulation and weak governance in such a big case signals the collapse of much more

Governance is the bedrock of any economy. It may be argued that there is no good budget or bad budget – it’s merely a pointer to how the government prioritises, and how it views development and growth. But there is clearly a distinction between good governance and bad governance. How well does India stand on standards of governance, not only in the public sector but in the eco-system in which we want private players to compete fairly, foreign capital to come in and set up large enterprises and for innovation and entrepreneurship to thrive? Without answering this question, any exercise in budgeting is merely a play of numbers, not a picture of the ground reality.

In this context, the shocking report by Hindenburg Research on the Adani group is a pointer to what is going wrong in the Indian economy. This is not to argue that the report should be taken at face value. But there is no escaping the depth of the report, the track record of the researching company and the big questions that they have raised on the Adanis, who head a group that has rocketed in a rather perplexing manner on the Indian business landscape. 

To be sure, Adani Enterprises Limited has dismissed the research report as “malicious” and a “lie”, and some will argue that the Union Budget is not about the standing of any particular group. But at the same time, what is to be said about the economy when one report by one international group brings such volatility to the markets that stocks of the fastest growing Indian business group go into a nosedive and its prestigious Follow-on Public Offer (FPO) of a mighty Rs. 20,000 crore has to be withdrawn as a result? The withdrawal came after the FPO itself was said to be over-subscribed, leading to a flood of reports from international datelines that the subscriptions were likely filled in by insiders.  

The private sector appears to be near-absent, forcing the government to ramp up its spending year after year to fuel growth

As these reports mix with post-budget analysis in the news media, the contrast shows up everything that is and should be causing worry about the robustness of India’s growth story. Poor regulation and weak governance in such a big case signals the collapse of much more. It tells the story of regulatory capture and raises fears of a systemic collapse. This cannot build trust in the economy or set the tone for longer-term sustainable and equitable growth, which is the stated goal of the government.

One important feature to help drive this growth is the huge spend of Rs. 10 lakh crores set out as capital expenditure in the coming fiscal. This is a robust increase of 33.4% per cent over the previous year, and three times the outlay in 2019-20. The FM pointed out that this “substantial increase in recent years” is central to the government’s efforts to enhance growth potential and job creation. Lack of jobs has been the bane of this administration and it is commendable that the government is spending heavily, expanding public capex to help create jobs and give us growth.

Yet, that begs some simple questions. The government will borrow to make these spends, and why must it do so if the economy is doing well and has recovered from the aftermath of Covid-19? A thriving, robust and dynamic economy must have a good mix of private businesses of all kinds, sizes and in various geographies of the nation competing to set up plants and machinery, building products and services to meet growing demand. Yet, the private sector appears to be near-absent, forcing the government to ramp up its spending year after year to fuel growth. That does not appear to signal an economic situation that is as robust as it is made out to be.

In the end, the budget is about numbers but it is also more about some principles within which the numbers must sit, and at its centre are the people the numbers are meant to serve – all people, regions, religions, classes and castes, marking the diversity that makes up India. This is inclusive growth. It can come only if the ground is well-nourished with social cohesiveness, communal harmony, respect for democratic traditions, a fearless judiciary, independent regulatory systems and an institutional framework that answers to rules, not rulers. By those standards, India has a long way to go and many course corrections to make.

(The writer is a journalist and faculty member at SPJIMR. Views are personal)