Editorial     

Published: January 31, 2025
Updated: January 31, 2025

Will Nitish-Naidu hijack the budget?

Though Union Finance Minister Nirmala Sitharaman will create a new record of presenting the Union budget for the eighth consecutive year, it won’t be smooth sailing for her on February 1, as there are fears that NDA allies Chandrababu Naidu of Andhra Pradesh and Nitish Kumar of Bihar may ‘hijack’ the budget.

Certainly, the task of giving a positive direction to economy will not be that simple as the environment is not conducive at present. The Indian economy is on a downwards slope, with the wheels of the manufacturing sector slowing down. The GDP is on a decline — as compared to 8.7 per cent in fiscal 2022, 7.2 per cent in fiscal 2023 and 8.2 per cent in fiscal 2024, it has slumped to 5.4 per cent in Q2FY25. The monster of inflation refuses to calm down and the value of the Indian currency is in a downward drift. Last week, the rupee tumbled to a lifetime low of Rs 85.86 a dollar. Compare this to Re 1 to a dollar at the time of independence in 1947!

As if the domestic headaches are not enough, external factors are adding to the country’s problems. Current geo-political tensions refuse to come to an end. The emergence of Donald Trump as the new US ‘czar’ has created fears of trade wars and poses a big challenge to emerging countries like India, as under his ‘America First’ objective Mr. Trump may impose stiff duties on goods and services entering the US. If President Trump resorts to restrictive trade policies, the worsening balance of payments situation of India will suffer a further setback.

In these circumstances, Ms Sitharaman will have to think up imaginative and effective steps to revive the economy by directing fiscal policies towards this end. But the government is in a bind – it cannot dare displease Chandrababu Naidu and Nitish Kumar as, if their demands for huge financial packages are not satisfied, they may withdraw support to the government and Narendra Modi will lose his prime ministership. The fear is that Mr Modi will do whatever he can to and go to any extent to retain his ‘gaddi’, to the extent of allowing Naidu and Nitish Kumar to skim the cream of budgetary resources for their own states.

And having had their financial appetites whetted last year, this time Mr Naidu and Mr Kumar will be even more aggressive in their fiscal demands. Should that be the case, the budget presented by Ms Sitharaman will turn out to be a wasted exercise for the Indian economy.

Thus, the biggest question making the rounds of trade, industry and market circles is whether, in order to save his chair, Prime Minister Modi will allow Chandrababu Naidu and Nitish Kumar to ‘hijack’ the Union budget.