PM Modi, Congratulations on India’s First Post-Truth Budget

Video Producer: Anubhav Mishra
Video Editor: Mohd Ibrahim and Vivek Gupta

Prime Minister Narendra Modi’s government has just delivered India’s first post-truth Budget! Exactly 18 hours before the Budget was presented in Parliament, India dramatically upped its previous two years’ GDP numbers.

Just look at 2016-17, when demonetisation had clearly ravaged the economy. But apparently, people used their cancelled Rs 500 and Rs 1,000 notes to go on such a 4-hour spending splurge (remember, citizens only had 4 hours before their old currency notes became less valuable than toilet paper) that growth in private final consumption expenditure was recalibrated from 7.3 percent to 8.2 percent.

The net impact? GDP caught fire, leaping 110 basis points (yes, no kidding, a full, furious, fanciful 110 basis points) to reach 8.2 percent, the highest in Modi’s 5 years, in that fateful year of demonetisation!

But the fudging… err “re-stating”… did not stop there. The next year, agricultural growth was yanked up from 3.4 percent to 5 percent (an eye-popping 50 percent; now I wonder why India’s field statisticians missed the telltale signs of such joyful rural prosperity when they were in the countryside). The net impact? GDP for 2017-18 was increased, at least on paper, by a huge 50 basis points. Now apparently, India’s farmers were shining.

So, magically, just hours before the Budget was read out, India had added over Rs 3.5 lakh crore to its nominal GDP this year. Why is that important? Since this is the denominator for all key metrics, including the critical fiscal deficit percentage, a bloated figure in the denominator would allow you to tell the world: “Hey, since my GDP is actually larger than what I had estimated earlier, I can overshoot the deficit.”

Seriously, the Modi government has shown a worrying streak to fool around with India’s GDP. Last year, a scientific exercise was launched to recalibrate the back-series to 2012 as the base year. “Unfortunately” it showed that UPA had breached the double digit ceiling to record 10.08 percent in 2006-07, and 10.30 percent again in 2010-11; predictably, the Modi government saw red.

That whole exercise was sacked, and cheerleaders were brought in to create an entirely new methodology. Voila, the UPA years got massacred, and Modi’s years leapt to the stratosphere. That was the beginning of the post-truth narrative in India’s economic reporting.

Now besides suspect GDP data, India’s budget is an archaic statement based on a “cash accounting” policy. This allows our bureaucrats to merrily fudge the numbers, pushing some “off the balance sheet,” while simply ignoring others which can be easily hidden. Just consider these examples:

• Until this year, the government had moved nearly Rs 2 lakh crore of its food subsidy liability on Food Corporation of India (FCI’s) balance sheet, which was borrowing from the National Small Savings Fund (NSSF) or EPFO or commercial banks. This year, the mysterious number has moved up by Rs 1.96 lakh crore; for next year, it’s budgeted at Rs 1.78 lakh crore. In simple words, this is 2-3 percentage points of the fiscal deficit that have been shoved off government’s books

• NSSF is a milch cow for other public sector companies too. It may have given over Rs 1 lakh crore to the likes of Air India, NHAI and “others”. These are, ultimately, central government liabilities, which are, once again, hidden “off the balance sheet”

• Then there is the curious swap of equities between public sector companies in which cash is transferred to the central government. For example: Rs 37,000 crore from ONGC’s purchase of HPCL, Rs 14,000 crore in the PFC-REC transaction, over Rs 50,000 crore invested by LIC in buying shares of government companies, etc. Since most of these transactions are financed by debt, they have the same impact as an increase in fiscal deficit i.e. increasing the interest rate and crowding out private investment

It’s now imperative for the government to move towards accrual and consolidated accounting. If these reforms don’t happen, and we continue to “manufacture” economic numbers, we shall be condemned to post-truth budgets.

Of course, the innately wise Indian voter could also rescue us in May 2019.