Answer:

The government budgeting process, in most countries of the world, is influenced by the exigencies of popular politics. However, the extent to which political exigencies and economic decision-making are interlinked differ from one country to another. In a country like ours, where the Indian State is envisaged as a developmentalist State, politics and economics are intricately intertwined. Our demand politics is oriented

towards short term goals, competitive processes for determining policies, public interest and the provision of private goods. It is constrained and directed by the imperatives of electoral victory and pluralist and class bargaining. This is essentially ‘bad politics’.

A sound budgetary process, on the other hand, requires resources allocation, efficiency, achieving macroeconomic objectives like employment, sustained economic growth, and price level stability, capital formation, controlling deficits, curtailing wasteful expenditure, efficient management of BoP etc. This is essentially ‘Good Economics’.

A necessary condition to achieve these economic goals is the state’s ability to free itself through leadership or repression from the constraints of societal demand. It requires sacrificing short run for long run benefits, while demand politics do the reverse. The preference of political leaders and bureaucrats largely determine budgetary decisions and policy choice in our country. They favour, repress, license, or co-opt economic classes, organized interests, and elites. Thus we can say, in Indian scenario, that ‘good economics’ and ‘bad politics’ are not compatible in a sound budgetary process. For instance, ‘good economics’ says that fuel subsidies should be removed as they are harmful for financial health of nation. But due to ‘bad politics’ these subsidies are still continuing to some extent.

However seeing ‘bad politics’ as populist measures – they need not be always incompatible with the ‘good economics’. Adopting budgetary reforms like adopting medium-term budget frameworks, prudent economic assumptions, top-down budgeting techniques, relaxing central input controls, focussing on results, budget transparency and modern financial management practices, along with performance budgeting, outcome budgeting and zero budgeting can bring an end to the contradiction between bad politics and good economics.