Resist temptation: The interim budget must show fiscal prudence
Every budget poses a dilemma for the government. If Hamlet’s question was “to do or not to do," the one before every elected administration is how far it should throw caution to the winds on populism. Should it take the ‘apres moi le deluge’ (after me the deluge) approach of Louis XV of France, spend its way to popularity and election victory? Or should it take a long-term view and do what is eventually best for the country? Economists call this the ‘time inconsistency’ problem.
This annual tug-of-war plays out in New Delhi every year before the Union Budget. But it comes to the fore more starkly if the budget is interim, with its stakes driven up by looming Lok Sabha polls, after which a new government must present the actual plan of inflows and outflows for the fiscal year. Such a vote-on-account is not meant to propose any changes in the tax structure, nor announce any major policy initiative.
But giveaways are always a temptation. Recall the Manmohan Singh administration’s farm-loan waiver on the eve of 2009’s general elections. Or the direct cash transfer scheme for farmers announced a decade later under the Narendra Modi government.
Let’s accept it. The electorate likes freebies. Why should it not? It is human nature to want something in return for nothing.
The political class, on its part, likes doling them out. So this is a win-win game. The hapless taxpayer, however, must pick up the tab for free water, electricity, debt waivers, you name it, while politicians romp home at the hustings.
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