Budget lessons from the Nawab of Awadh..

Aurodeep Nandi draws budget lessons from Nawab of Awadh.

The Nawab built Imambara amidst struggling economy. Thus, India should also opt for more Capital expenditure ahead of revenue expenditure:

In 1785, the nawab of Awadh had to deal with a devastating famine that would last a decade. As the famine continued and hit both his poor and rich subjects, the nawab was under pressure to find a way to keep the economy running and generate employment across social strata. So he decided to commission a grand construction project. Labourers would work during the day while the elites would dismantle it all in the anonymity of the night. Incidentally, this was 150 years before celebrated economist John Maynard Keynes came up with his signature theory of how governments could escape economic slowdown by making people dig holes and then fill them up.

For those unfamiliar with how this story ends, the nawab’s fiscal stimulus ultimately birthed one of the most iconic structures of present-day Lucknow—the Bara Imambara.

What Keynes and the nawab had realized was that government spending has a multiplier effect. The first people to receive money from the state’s coffers will save some of it and use the remaining to pay for goods and services from other citizens. They in turn will repeat the exercise with other people they get in touch with and so on, creating a ripple effect of sorts. Also, increased government spending on investment can help create a positive business environment that “crowds in” risk-averse private players, further contributing to growth. This is known in economic jargon as fiscal multiplier—i.e. how much the economy grows for an extra rupee of government spending. If it is more than one, then there is evidence of the multiplier effect working.

Hmm..

Well if one goes deeper into the economics of several such historic construction projects, we will see parallels. This blog had pointed how Umain Bhawan of Jodhpur was also built under similar economic conditions facing the kingdom (though the work for this palace started much later in 1929).

The problem here is these projects were done at a local level and were much focused. One also has to see track record of the modern Governments on expenditures which is not promising at all. This is not just limited to India but globally too. They usually overshoot both expenditure amounts and duration.

Another related problem is utility of the project itself. Were their better alternatives on which one could have spend the money which was otherwise spent on the project? In most cases, the answer is a big yes. Most of these projects are built for the elite and remain mere showpieces thereafter.

In the end, all these decisions boil down to politics and very little economics. A limited reading of economic history tells one to give governments benefit of doubt on other matters (whether democratic or autocratic) and on expenditure  front, there is no doubt really.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s


%d bloggers like this: