Enter the rollback

This Budget perpetuated the tradition of rollbacks with the removal of the proposed hike in fertiliser prices. It's become clear that FMs operating under coalition governments must learn how to use rollback as a bargaining chip in future Budgets.

To understand how rollbacks developed and their possibilities for leverage, we need to look at the historical perspective. The last time India voted for single-party majority was 1984. Since then, the establishment has dealt with the contradictory pushes and pulls of coalitions.

In psephological terms, central coalitions are guaranteed until and unless the Congress or BJP win significant majorities in the 139 Lok Sabha constituencies of erstwhile Bihar and UP ( now including Uttaranchal and Vananchal). But these seats are split between the BSP, RJD, SP and other alphabet soups. There is thus every chance that the next central government will also be some coalition.

It's difficult to construct a Budget that is fiscally sensible, pragmatic and constructive in macro-economic terms. It is even more difficult to construct a Budget that will please every faction of any coalition. It is almost impossible to construct a sensible Budget and to get it past any coalition.

Almost, but not quite impossible. In order for our hypothetical FM to pass a sensible Budget, he must descend from the commanding heights of fiscal macro-economics to manipulate the frivolities of game theory. To get a Budget past a coalition, the FM must flim-flam Parliament.

This is a game -- one where players bargain hard for what they consider favourable outcomes. In such situations, it's difficult for any player to get 100 per cent of what they ask for. Both parties reach a point of satisfaction where some of their respective demands are met.

However, it's not symmetric -- the FM has an advantage. He has better information in that he knows what he is asking for, and what he really wants. This is similar to a mandi situation where the shopkeeper always asks for a much higher price than he really wants.

Enter the rollback. The FM is aided by the fact that Indian legislators tend to react by rote. A hike in fertiliser rates, a cutback in food subsidies, a reform of labour laws or, most heretically, a tax on agricultural incomes will all be met by kneejerk opposition.

Any and every such provision could be used to distract opposition from the rest of the Budget. Of course, if the FM could get any or all these provisions past Parliament, it would be useful. But if that's not realistic, each of these positions can be bargaining chips. This gives us a simple strategy for the FM.

Any FM who is a decent gameplayer can construct a primary Budget that he considers sensible with a set of provisions that he really wants. Then, in order to deflect opposition from the primary provisions, he adds on a list of secondary demands. He is prepared to concede these in a series of rollbacks.

The more opposition he anticipates to the primary provisions, the larger and more inflexible the list of secondary demands should be. That way, there are lots of things to rollback, and everyone exits happy once the finance bill is passed.

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