Sitharaman’s Budget 2021 is being praised for its honesty. Why is that being considered ‘brave’?

In the run-up to Budget 2021, Finance Minister Nirmala Sitharaman’s speech was being touted as the most important in a generation. As the first Budget in the aftermath of the Covid-19 pandemic, Sitharaman would be charting out a road-map for India’s post-crisis future – not counting several economic packages over 2020 that Prime Minister Narendra Modi referred to as mini-budgets.

Having delivered her speech and tabled the budget documents, Sitharaman is getting praise for something that ought to be expected from a public servant: honesty.

Sitharaman herself touted this view of the Budget, saying, “We have made brave decisions to keep government accounts open and transparent.”

Why is being honest a brave decision for the finance minister?

The remarks have come in response to the official deficit numbers declared by the government. Sitharaman’s post-pandemic budget estimates a deficit of 9.5% for the current fiscal year, from April 2020 to March 2021. This is up from around 7% expected by most analysts before the Budget. Similarly, for the next fiscal year, Sitharaman set a deficit target of 6.8%, higher than the 5.5% forecast by a Reuters poll of economists.

The reason for the jump in numbers is because the government has decided to officially admit to the extent of its borrowings, and to bring the entire food subsidy formally onto its books, which hadn’t been the case for a number of years.

“The most important part of the government’s budget is to present its financial accounts as accurately as possible,” wrote Bad Money author Vivek Kaul. “This is a step in that direction.”

Brave decision

But again, why is this honesty “brave”?

Because of the way she and her predecessors have operated when putting forward the Budget, which at its core is a statement of accounts, every year.

A few years ago, in an interview to Swarajya, Prime Minister Narendra Modi spoke about being shocked by the true economic numbers presented to him after coming to power.

“The state of the economy was much worse than expected. Things were terrible. Even the Budget figures were suspicious...

The details about the decay in the Indian economy were unbelievable. It had the potential to cause a crisis all over.”

And so, instead of actually coming clean about those numbers Modi decided it would be better to remain quiet and hope that his government would be able to fix the problem. The last few years have made it clear that Modi wasn’t just saying that – a lack of transparency, “in the country’s interests” was official government policy.

For example the methodology for calculating India’s Gross Domestic Product was updated in 2015, and has since been questioned by numerous economists and analysts, including Modi’s own former economic adviser, Arvind Subramanian. He said it had over-estimated growth by as much as 2.5 percentage points.

Meanwhile, in other spheres, the government chose to suppress data. In 2019, for example, independent members of the National Statistics Commission after the government chose to suppress official data on jobs that showed unemployment rising to its highest level in 40 years under Modi.

Budget numbers

The Budget documents themselves have been the source of much criticism.

Analysts have for years been saying that India’s deficit numbers are higher than what the government admits to in its budget documents, because of off-Budget borrowings meant to mask the true nature of government debt. While this approach is not limited to Modi’s government alone, the last few years have seen numerous obervers question the government for its fudging of numbers. The Comptroller and Auditor General has even criticsed the government for hiding the real level of the deficit, which is a key component upon which to make other decisions and calculations.

In 2019, during a presentation to the 15th Finance Commission, the CAG re-calculated the official deficit numbers and demonstrated how they were at 5.86% of GDP, as compared to the 3.4% being declared by the government without adding off-budget borrowings. According to the official statement after the meeting, “fiscal transparency in the fiscal reporting of the Union and state governments was discussed especially in the light of increasing trend of off-budget and extra-budgetary resource raising by the governments”.

Against this context, Sitharaman’s efforts to come clean about the numbers seems more like a schoolchild who admits to cheating after being called out by the teacher, but insists that his acknowledgment of the lapse is a brave act.

Unless Sitharaman meant it personally.

For a government that regularly chooses to suppress data that shows it in a bad light, labels all criticism “anti-national”, jails journalists who ask pertinent questions and runs a giant misinformation machine, a minister would indeed have to be brave to admit that her colleagues have been peddling falsehoods to the Indian public for years now.