Vision 2030

With Budget 2019, Modi Govt Hopes that its Piecemeal Solutions Will Ease Distress

The government has done little to assuage concerns on employment and the middling growth of the manufacturing sector.

Acting finance minister Piyush Goyal had a daunting task before him for at least three reasons as he stepped in to present the interim budget.

First, he had to walk a tightrope to avoid the criticism that the government put time-tested conventions aside by presenting a sixth budget, while its tenure was for five years. Moreover, any major commitment made in the interim budget, especially by tabling a finance bill, could be seen to be dictating policies to its successor – more so, if the NDA does not return to power in May.

Goyal’s second compulsion was to placate disgruntled farmers, who had fuelled the discontentment against his government and were seen to be largely responsible for setting the tone for the defeat of the BJP and its allies.

A third compulsion was the leaked news about India registering highest level of unemployment in decades.

On the first count, Goyal would have been happy to see over his shoulder that P. Chidambaram had also presented an interim budget, and had also presented a finance bill. Thus, following the tradition set by UPA-II, the NDA government presented its so-called achievements, in what was effectively the first version of its election manifesto going into the hustings.

Also read: Will the Budget’s Charm Offensive Quell Distress Before the General Elections?

What’s on offer?

For a government facing the hustings, there cannot any other option but to offer largesse to the farmers, as agriculture continues to support, directly and indirectly, nearly 60% of the country’s workforce. The imperative for the NDA is even greater with rising farmer unrest against its government’s policies. Desperate situations call for unprecedented moves and Goyal did so by announcing a path-breaking scheme.

Under pressure from Congress president Rahul Gandhi who had declared his party’s intention to provide guaranteed minimum income to farmers, the acting finance minister announced the “Pradhan Mantri Kisan Samman Nidhi (PM-KISAN)” to provide direct income support to “vulnerable landholding farmer families, having cultivable land up to 2 hectares”.

All India Kisan Sangharsh Coordination Committee members and farmers at the rally at Ramlila Maidan on November 29, 2018. Credit: PTI/Ravi Choudhary

Farmers at a rally in Ramlila Maidan, November 29, 2018. Credit: PTI/Ravi Choudhary

Each identified family would be paid at the rate of Rs 6,000 per year, to be transferred directly into the bank accounts of beneficiary farmers, in three equal instalments of Rs 2,000 each. The programme would have an annual outlay of Rs 75,000 crore and would benefit around 12 crore small and marginal farmer families.

There are two interesting facets of this programme. One, it will be fully funded by Government of India, and two, the programme has been introduced retrospectively, from December 1, 2018. This means that the beneficiaries will be getting the first instalment before the end of the current fiscal, i.e. by March 31, 2019. Thus, for rolling out PM-KISAN, Goyal provided Rs 20,000 crore in the revised estimates of FY 2018-19.

Piecemeal solutions

Two sets of issues arise in the context of this new scheme. First, the government seems to have left out the most vulnerable sections of the farming community – landless labour and tenants – from the scheme. Secondly, the government does not seem to have factored-in the losses that the farmers have suffered in recent months because of steep fall in agricultural prices.

In short, the government has signalled that it still interested in taking piecemeal measures to address problems in the farm sector, instead of bringing a comprehensive policy framework that can provide a lasting solution to farm distress. This approach to farm sector problems comes out clearly from NDA government’s Vision 2030, which Goyal has presented in his budget speech.

Also read: Is This Budget Really for Unorganised Sector Workers?

NDA government’s flagship programme to provide jobs was the “Make in India” initiative, which, as announced by prime minister Modi in 2014, was to create 100 million new jobs by 2022 by increasing the share of the manufacturing sector in India’s gross domestic product (GDP) to 25%, from just above 16%. However, in the past four years, the performance of the manufacturing sector has not been robust enough to signal such a turnaround – the sector has grown a tad over 4%.

More importantly, the employment-intensive sector, namely, the micro, small and medium enterprises (MSMEs), have suffered the twin blows of demonetisation and the introduction of the Goods and Services Tax. This implies that the probability of manufacturing jobs being lost is quite significant.

Manufacturing sector has also been affected by the slowdown in the domestic investment rates. Before the official numbers began to be questioned, the domestic investment rate recorded was as low as those recorded in the early years of the millennium. In his speech, the acting finance minister, reported that his government had attracted the highest inflows of foreign direct investment. What he did not report was that repatriation of equity capital invested by foreign firms was also the highest in this period.

Lack of investor confidence seems to be an issue that needed immediate attention, but the Interim Budget ended up announcing only a plethora of populist measures instead.

Saudi Reform Plan Aims to More Than Triple Revenue, Slash Salaries

While some of the targets, such as cutting lavish energy subsidies, have been applauded by economists as long overdue, others, such as a goal of ending dependence on oil by 2020, have provoked widespread scepticism.

Saudi Crown Prince and Interior Minister Mohammed bin Nayef (L) and Saudi Arabia’s Deputy Crown Prince Mohammed bin Salman attend a cabinet meeting in Jeddah, Saudi Arabia June 6, 2016. Credit: Saudi Press Agency/Handout via Reuters

Jeddah, Saudi Arabia: Saudi Arabia plans to more than triple the government’s non-oil revenues and clamp down on public-sector salaries over the next five years, ministers said on Monday as they described reforms designed to reduce the economy’s dependence on oil and build a sustainable future.

The National Transformation Plan (NTP) aims to boost non-oil revenue to 530 billion riyals ($141 billion) by 2020, creating some 450,000 non-government jobs, according to comments by ministers and documents distributed to reporters in Jeddah.

The plan aims to “enhance the level and quality of services” provided by government and “achieve a prosperous future and sustainable development,” it said.

The NTP, which includes over 500 projects and initiatives as well as performance indicators for ministries and other government agencies, will cost around 270 billion riyals to implement, the document showed.

Minister of State Mohammed Al al-Sheikh said the cost would have no impact on Saudi budget spending, and added that a further 300 billion riyals was expected to be contributed to NTP initiatives by the private sector.

The plan is part of a wider, long-term reform drive known as Vision 2030, which was announced by Deputy Crown Prince Mohammed bin Salman in April. He aims to overhaul many aspects of Saudi Arabia’s economy and society as the kingdom prepares for a future of shrunken oil revenues and a rising population.

The finances of the world’s top oil exporter have been hit hard since the summer of 2014, when crude prices plunged, producing a state budget deficit of nearly $100 billion last year.

The plan aims to increase the percentage of government debt to gross domestic product to 30% from 7.7% now.

Under Vision 2030, new non-oil revenue is expected to come from the introduction of a value-added tax, “sin taxes” on sweet drinks and tobacco, and fees imposed on the private sector.

Al al-Sheikh said there were no plans to introduce income tax for citizens. The text of the plan proposed to spend 150 million riyals on preparing income tax for residents, a phrase normally applied to expatriates. Al al-Sheikh said the only tax commitment approved so far was for VAT and said that further questions on taxation should be addressed to the finance minister.

According to the NTP, the government will strive to reduce the value of public salaries and wages as a proportion of the budget to 40% from 45% by 2020, and cut water and electricity subsidies by 200 billion riyals.

The energy ministry aims to maintain its oil production capacity at 12.5 million barrels per day (bpd), raise gas output capacity to 17.8 billion standard cubic feet a day from 12 billion, and raise refining capacity to 3.3 million bpd from 2.9 million, the document said.

Abdul Rahman Al-Fadli, Saudi Minister of Water, Environment and Agriculture, Khalid al-Falih, Saudi Energy Minister (C) and Minister of Hajj and Umrah Mohammad Benten attend a news conference announcing the kingdom’s National Transformation Plan, in Jeddah, Saudi Arabia June 7, 2016. Credit: Reuters/Faisal Al Nasser

Saudi Arabia will also aim to install 3.5 gigawatts of renewable power capacity by 2020 and spend 300 million riyals on identifying locations for atomic electricity plants and preparing them for construction, the plan said.

An appendix to the plans listed spending targets for hundreds of initiatives aimed at boosting both economic and social goals, including 4.7 billion riyals on improving hospital emergency rooms and intensive care units.

Other spending included 2.1 billion riyals to restructure the postal sector, 5 million to set up an intellectual property authority, 8 million to improve civil service performance and 3.5 billion to maintain cultural heritage.

Plans

Whether the plans are achievable has become a constant subject of conversation in the kingdom. On Monday, the first day of Ramadan, the annual satirical television show “Selfie,” which runs during the fasting month, lampooned the preoccupation with the plan.

It showed a vision of Saudi Arabia 100 years in the future, with a widely lamented shortage of adequate housing persisting and women still barred from using cars alone even in self-driving cars.

While some of the targets, such as cutting lavish energy subsidies, have been roundly applauded by economists as long overdue, others, such as a goal of ending dependence on oil by 2020, have provoked widespread scepticism.

A focus on the private sector to deliver new revenue streams and help boost employment has raised concerns that measures such as deregulation and privatisation will fail to help companies compensate for a fall in state spending.

The government aims to accelerate privatisation. Details in Monday’s plan showed the Energy Ministry aimed to transfer all its power generation to “strategic partners” by 2020. Riyadh will also privatise its water desalination agency, it said.

The plans have alarmed some social conservatives, who regard proposals to increase the number of women working and create more opportunities for entertainment in a country where cinemas are banned as risking a betrayal of Islamic values.

Managing such contradictory impulses will be a tough task for Prince Mohammed, the architect of the reforms, who has risen from near obscurity before his father became king early last year to a position of almost unprecedented power in the kingdom.

He was named head of the new Council for Economic and Development Affairs, a super committee tasked with overseeing long-term structural changes in Saudi Arabia’s domestic policy.

Monday’s national transformation plan is the latest manifestation of that process, the culmination of months of detailed planning that drew in foreign consulting firms and thousands of Saudis through workshops with the private sector.

Other elements of the Vision reforms which are not included in the National Transformation Plan include the privatisation of state oil giant Saudi Aramco and the transformation of the Public Investment Fund into a massive sovereign wealth fund.

(Reuters)

Saudi Reform Plans Flirt with Social Change

Deputy Crown Prince Mohammed bin Salman’s “Vision 2030” plan, which the 31-year-old announced on April 25, largely aims to transform Saudi Arabia’s economy in an era of low oil prices and made few specific pledges of social change.

Deputy Crown Prince Mohammed bin Salman’s “Vision 2030” plan, which the 31-year-old announced on April 25, largely aims to transform Saudi Arabia’s economy in an era of low oil prices and made few specific pledges of social change.

(L-R) Saudi Crown Prince Mohammed bin Nayef, Saudi King Salman, and Saudi Arabia’s Deputy Crown Prince Mohammed bin Salman stand together after Saudi Arabia’s cabinet agrees to implement a broad reform plan known as Vision 2030 in Riyadh, April 25, 2016. Credit: Saudi Press Agency/via Reuters

Riyadh: Reforms promised by a young Saudi prince are couched in references to the kingdom’s Islamic tradition but include ideas likely to upset some conservatives, risking future ruptures over the direction of society.

However, it also stepped into areas that have long been cultural battlegrounds in a country defined by its religious conservatism.

For the Al Saud dynasty, which has always ruled in alliance with the powerful clergy of the kingdom’s semi-official Wahhabi school of Sunni Islam, that may require care in how far to risk a conservative backlash.

Presenting the plan, Prince Mohammed batted away the question of whether women would soon be allowed to drive. Instead, he turned to the usual formulation of Saudi rulers that their society was not yet ready for this, but he appeared to raise the possibility of change elsewhere.

Seemingly anodyne promises to invest in cultural events and entertainment facilities, to encourage sports and promote ancient heritage and Saudi national identity, are highly controversial among conservatives.

In Saudi Arabia, cinemas are banned and women’s sports are discouraged as promoting sin. The pre-Islamic era is dismissed as the age of ignorance, its relics deemed ungodly, and some clerics even see patriotism as tantamount to idolatry.

“When he talked about quality of life, about entertainment, he is aware of the changes in our culture and that’s what people understood him to be talking about. But at the same time, he showed reluctance,” said Jamal Khashoggi, a leading Saudi journalist.

Prince Mohammed has presented himself as the face of Saudi youth, devoutly Muslim but in a way different from the older generation of clerics, being more open to the outside world and more accepting of its cultural influences.

As a mark of the internationally-oriented nature of Prince Mohammed’s ambitions, Vision 2030 used the Western calendar in its title, not the Islamic Hijri calendar officially used in Saudi Arabia, under which this year is 1437.

When he presented his plan, the prince gathered clergy, intellectuals and journalists from across the spectrum.

But the government’s recent decision to increase curbs on the religious police, and continued support for women working, have prompted conservative anger, showing how sensitive the cultural struggles are.

A video posted on YouTube before Prince Mohammed announced the reforms was titled “Before the Catastrophe” and portrayed a society riven by the moral degeneracy of the West before succumbing to chaos and violence.

Wary steps of change

The Al Saud have always stepped warily with the clergy, aware that the most dangerous challenges to their rule in the kingdom’s 70-year history have come from aggrieved religious conservatives.

However, they have also traditionally balanced that caution by giving space to the Westernised business elite, and to those liberal intellectuals who have historically backed Al Saud rule, to push social boundaries and nudge the kingdom towards change.

Under a pact between the Al Saud and the Wahhabi clergy dating back to the 18th century, the princes had responsibility for governing and the clerics for religion.

Over the centuries, however, the definition of where each of those spheres of influence begins and ends has shifted, often marking the boundary of cultural battlegrounds.

In recent years changes to education, which is shifting from the domain of the clergy to that of government, to law, in which proposed reforms have encroached on clerical prerogatives, and to the public role of women, have dominated internal disputes.

“If you do it too fast, it has a negative impact. Reform in Saudi Arabia always has a precondition: it has to come from inside, it has to be gradual and it has to take into account what people believe is right,” said Abdulaziz al-Sager, head of the Gulf Research Centre based in Jeddah and Geneva.

Cultural tussling

Saudi Arabians are avid consumers of Western media and culture. Despite the cinema ban, Hollywood films and recent television series are widely watched at home and discussed. Saudis view YouTube more than any other nationality, measured per capita, and both liberals and conservatives use social media to spread their views.

Slick, often funny, online videos produced by young Saudis score millions of hits on YouTube and the 2012 movie Wadjda – the work of a female Saudi director about a young girl navigating religious strictures – won awards at a number of international film festivals.

So when Prince Mohammed promises land for cultural and entertainment projects, and support for “talented writers, authors and directors”, he seems to point towards a reversal of the ban on cinemas, but without explicitly doing so.

But potentially most explosive of all is the renewed commitment to reform education, a process started under King Abdullah who died last year. Prince Mohammed has sworn to create “an education system aligned with market needs”, a far cry from schooling that still draws heavily on Koranic teachings.

Traditionally, one way the Al Saud had of persuading the clergy to accept change was to spend money on a big religious projects, thereby demonstrating their continued support for Islam in Saudi Arabia.

While one aspect of the new plan was for a huge Islamic museum, even that may cause friction: Wahhabi doctrine holds the display of ancient artefacts, even those associated with the Prophet Mohammed, to risk committing idolatry.

With his plan predicated on cutting the indiscriminate spending of the past, however, and with a new age of austerity looming due to cheap oil, Prince Mohammed might be denied the luxury to stage cultural warfare with petrodollars.

(Reuters)