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The Rediff Budget Jury/Pritish Nandy

Hail Sinha for offering a Budget for the new economy

The lynching mobs are out on the streets ever since Yashwant Sinha announced his Budget. The media, the most vociferous of his critics, has gone overboard in attacking him for what it sees as an effete and bungled Budget.

Effete because Sinha did not, according to them, bite the bullet as hard as he had promised to. The deficit still remains huge. The subsidies, they feel, could have been further reduced. Bungled because the Budget led to a sharp decline in the Sensex which for weeks before that had steadily migrated northwards and given the economy a strong, feel-good mood. This has now gone for a six.

It missed, however, the main thrust of Sinha's efforts.

Firstly, this Budget, for the first time anywhere in the world, draws a sharp, dividing line between the commodity economy and the ideas economy. It is a clear, distinct line that allows for no fuzziness of thought. Sinha has obviously made up his mind that the future of India lies not in the commodity economy of the past but in the ideas economy of tomorrow.

I have described it as the ideas economy but you can call it the information economy or the knowledge economy if you want. Or, more simply, the new economy. However you describe it, one thing is clear: Whatever the doomsday guys may say, it is here to stay. To keep reminding you, again and again, that value comes from people and ideas. Not brick and mortar. Not factories and plants.

The prophets of the ideas economy, people like Narayana Murthy (Infosys Technologies's chairman) and Subhash Chandra (Zee group chairman), are the new trade union leaders. They have led their employees towards democratising wealth. Millions of small investors are happy and many among their own staff hugely rich.

But, what is far more important, they have turned the clock back and taught the world once again that the core value of an organisation lies locked in its people, its talent. Not in fancy plant and equipment that technology renders obsolete every few months. In fact, the quicker the pace of technology change, the more crucial becomes the role of the talent which drives this technology to output idea-products.

The most interesting thing about this economy is that you cannot measure its success in terms of traditional models. You cannot value the companies that drive it in the same way that you have valued the ACCs and TISCOs in the past. This is an entirely different ball game and the rules have nothing in common. If you value Satyam and TV18 the way you value Colgate Palmolive or ITC, you are bound to go hugely wrong. You will miss every opportunity the market throws up.

It is interesting to see that a politician, in fact a politician associated with a party as conservative as the BJP and running an economy as traditional as India's, has understood this simple fact and openly rooted for the ideas economy.

So you have this peculiar situation where the Sensex crashed by almost five per cent because of the Budget but the Mindex (an Indian financial daily's index that tracks knowledge-based industries like pharmaceuticals, infotech and media) soared. The Mindex soared despite additional tax proposals. It soared despite the fact that the government proposes to dismantle the 100 per cent tax incentive for exporters over the next five years.

I can understand why the Sensex crashed. Sinha's proposals have hurt all those who think entrepreneurship means using political influence to borrow liberally from the nationalised banks and set up assembly lines to manufacture products that can be dumped on India at absurd prices.

As long as our economy was shielded from global competition, this was fine. In fact, this is exactly how many of our big business houses have grown despite their shoddy products and rotten management culture. The current liberalisation process has brought that to a halt. Competition will now force these houses to flee their virtual world of the past and cope with the real world in real time.

By encouraging the ideas economy, Sinha has successfully redefined our priorities. He has stated upfront where the government's support lies. He has sent out a clear notice that India wants to be an important player in tomorrow's economy. Not an also-ran in yesterday's. That is why stocks of those companies that are working towards building tomorrow's economy have risen in response to the Budget while the stocks of companies that are part of yesterday's scenario have crashed.

Secondly, by cutting down subsidies, Sinha has sent out a strong message that while the government may be deeply concerned about the below-poverty-line families (whose foodgrain rations have been doubled), it has no intention of further mollycoddling the upwardly mobile middle classes who want to have the best of both worlds.

You cannot earn Rs 100,000 a year, pay virtually no taxes and expect to pick up your sugar at a hugely subsidised price from the local rationshop. Subsidies exist only for the real poor. The Budget intends to protect them and tax the rest. And, given the increasing propensity of our middle classes to spend more and more on FMCG products, it is not surprising that Sinha has indirectly increased the taxes on them.

He has also spread the tax net wider. Thousands of Indians living in the smaller cities, who own houses and flats, travel abroad, are members of clubs and use fancy mobile phones, will now have no option but to file their income tax returns.

Hopefully, this will enhance the number of tax payers in the country and reduce your load and mine. No one will be allowed to escape the tax dragnet forever: that is the next message of the Budget. Each of us is responsible for making India work.

Some of us will have to pay more taxes. Others may have to do with less subsidies.

Thirdly, Sinha has sent out the message that India's single largest minority must be given some recognition. It is tokenism, true, but it makes us one of the few countries in the world that recognises the fact that women, particularly working women, must be handled not just as equals but as more than equals so that they can be compensated for centuries of suppression and neglect.

The special tax deduction offered to women is a pittance. It is important not in terms of its value but in terms of the recognition of the role of women in a working society and as a payback for centuries of wilful exploitation and disregard.

In other words, the Budget has sent out several vital signals. All of which have been ignored in the melee to run it down. It is a clever Budget. It is a significant Budget and it is a Budget that anticipates the future. It is a Budget that is saying several interesting things if we are only ready to listen.

But the most interesting thing it is trying to tell you and me is that tomorrow's India will be very different from yesterday's and unless we are prepared for it we will never cope. The working models will be different.

The economic compulsions will be different. The ways that people will earn and grow wealth will be different. If we stick to P/E (price-earning) ratios and EPS (earnings per share), we will be only rendering ourselves obsolete.

For the ideas economy will be ruled not by the drudgery of numbers but by the imagination and the genius of people. In the conversion of this imagination into reality, millions of people worldwide will become infinitely richer. Breaking the age-old, traditional models of growth and wealth creation.

In the ideas economy, there will be no First World, no Third World. No developed nations; no struggling, poor nations. No North, no South. Everyone will have one more chance to make it big. By anticipating the future and working towards realising it.

It does not matter whether you are Germany or Sudan, Yugoslavia or Bangladesh. As long as you can reorient your vision, redraft your priorities, you can emerge a powerful player.

But the first step towards that is to shred ideology. The second: to value creativity and recognise the simple fact that in our dreams lies our future.

Yashwant Sinha has figured this out way ahead of the rest.

Pritish Nandy

The Rediff Budget Jury

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