The Union budget that the Indian Finance Minister Mr Pranab Mukherjee presented in Parliament on July 6 was a surprise. With the Left Parties out of the UPA, many expected a budget that will be pro-business and will announce a massive dis-investment plan in Public Sector Undertakings. There were also expectations that there will be throwing open of Insurance and Banking sectors for foreign investment. But the budget was a disappointment for the Stock Market and Foreign investors. Here are some quotes from Finance Minister's speech.
The Public Sector Undertakings are the wealth of the nation, and part of this wealth should rest in the hands of the people. While retaining at least 51 per cent Government equity in our enterprises, I propose to encourage people’s participation in our disinvestment programme. Here, I must state clearly that public sector enterprises such as banks and insurance companies will remain in the public sector and will be given all support, including capital infusion, to grow and remain competitive.
The financial sector is the life blood of any economy. Our Government’s approach to the banking and financial sector has been to ensure robust oversight and regulation while expanding financial access and deepening markets. The merit of this balanced approach has been borne out in the recent experience, as the turbulence in the world financial markets has left the Indian banking and financial sector relatively unaffected. Never before has Indira Gandhi’s bold decision to nationalise our banking system exactly 40 years ago - on 14th of July, 1969 - appeared as wise and visionary as it has over the past few months. Her approach continues to be our inspiration even as we introduce competition and new technology in this sector.
Why the budget was more pro-people than pro-investor?
Congress Party must have realised that their victory in the last election is primarily due to social welfare schemes like the NREGA and NRHM. Large increase in allocation to those schemes and the new Food Security Scheme make it a more Leftitst Budget than most of the previous budgets that Congress Finance Ministers presented.
Also the World economic recession caused by un-bridled Capitalism made the Finance Minister vary of further privatisation and de-regulation.
As Siddharth Varadarajan wrote in The Hindu:
With growth as the target, the Congress high command has two models to choose from: the rent-generating, corporate handout-driven route which the BJP-led National Democratic Alliance followed to disastrous political effect from 1998 to 2004; or an expenditure-driven expansionary fiscal strategy with the emphasis on expanding the consumption entitlements of the poor. Corporate and bureaucratic elites favour the first model, and the Economic Survey reflects this technocratic bias in policy recommendations. But Mr. Mukherjee’s budget reflects the Congress party’s privileging of the political in the widest sense.
At a time when the biggest private banks and insurance companies in the West have fallen flat, it makes little sense to pitch for India to open its doors to them.
The reaction of the stock market to the budget shows how out of touch with sound economic logic the country’s biggest investors are. And their belief that the Congress would use the departure of the Left from the broader UPA stable to veer sharply and immediately to the right betrays an equally poor understanding of the realities of Indian politics.
Was it because of that realisation of Indian Politics that it was Pranab Mukherjee a seasoned Politician and not a technocrat or an economist was choosen as the Finanace Minister?