There was a rising expectation that India would see a budget with a difference in the second term of Prime Minister Narendra Modi. This was because the economy was waiting to be revived. It was reeling with a growth slowdown, steep fall in investment rates and battling a stressed financial system. Bad loans had battered the banking system. Commoners who use the banking system were gripped with fear of losing their money in scams and bad management. There was a crisis of confidence as to whether their life savings would disappear all of a sudden.
The economic scenario was not so bad in the last 11 years.
Finance Minister Nirmala Sitharaman’s budget did not help matters. As this was the second budget she presented in Modi’s second term, one hoped that she would do something to revive rising levels of unemployment which had not seen such a slump for decades. There was little in the budget which made the educated unemployed feel that they would see any light at the end of the tunnel.
Her marathon budget speech lasting two and a half hours contained terms like “Aspirational India”, “Economic Development for all”, and “Caring Society”, did not create any buzz as slogans no more were catching anyone’s imagination. The rhetoric was obvious making one wonder what happened to the USD 5 trillion economy Modi was promising before the next parliamentary election.
She said the government wanted to double the income of farmers by 2022 and allocated 2.83 lakh crore for agriculture and allied activities. Considering the slump in agriculture and how unattractive it had become for farmers as it has become unviable, her deadline of 2022 seemed impossible for any farmer to double the income. Her attempt to cajole farmers who were angry and upset at the state of agriculture can only work if there are solid reforms and actions to revive Indian agriculture. Kishore Tiwari of the Shiv Sena said that the 16-point action plan for agriculture was an “eyewash”. A bailout package to help farmers survive the serious agriculture crisis that was driving them to commit suicide.
Education has never been a priority for the Modi government. In fact, a recent proposal is to cut down the education budget for schools by around Rs.3,000 crores. Which government in the world would do something like that? Apart from the Aap Aadmi Party that allocated 26 percent of its budget to education in Delhi, no other political party has done something like this ever since independence.
When Sitharaman said that she allocated Rs. 99,300 crore for education, it sounded good. But a closer look would show you that she actually slashed education expenditure from 3.5 percent to 3.3 percent of overall expenditure. Her allocation of Rs.3,000 crore for skill development is a pittance considering that Modi has been talking so much about how the government wants to focus on skills to deal with unemployment. Remember the Skill India slogan?
Her ploy of raising customs duties on a range of products that include mobile phones, tableware, kitchenware, electrical appliances, footwear, furniture, stationery, toys and medical equipment might help indigenous companies that are facing a depressing slowdown. But these are essentials and will hurt the common man.
was surprising that time tested programmes like the Mahatma
Gandhi National Rural Employment Generation Act that helped thousands of families fight poverty and imminent hunger got the short shrift when the government actually should have poured more money into it. Instead, it enforced a 13 per cent cut which amounts to around Rs. 9,500 crores. Why did it do this when it would have helped the rural poor get some badly needed sustenance?
Though GST has been rolled out, it has been sloppily implemented. Tax collections have not been as high as envisaged. Rampant cheating by shopkeepers, for instance, continues as they do not give bills to consumers saying that if they insisted on it, they would have to pay GST and other taxes. Tax evaders continue to laugh on their way to the bank.
Sitharaman used tax policy to attract foreign investment to finance infrastructure. But investments, both foreign and domestic, are not going to happen if there is no peace. Businesses cannot thrive in an atmosphere of fear, hatred and insecurity. With political uncertainty, the possibility of communal flare-ups and campaigns whipping up hatred, investment is not going to come in as no investor wants to lose money in such a fragile environment.
While she tried to sound confident about growth, she could not pull it off in her unusually long speech. How did she expect anyone to believe her when she said that the nominal GDP growth would rise to 10 percent in the coming financial year when even her government's Economic Survey pegged it at 6 to 6.5 percent?
Analysts immediately pointed out that even this estimate was exaggerated as there was no evidence on the ground that it would shoot up to even this level! Nothing of what she said made financial analysts feel that the current slowdown is going to change so dramatically.
Former Finance Minister P. Chidambaram said that there was nothing in the Budget that would make anyone believe that growth would revive and the claim of 6 to 6.5 per cent growth in the coming year was astonishing and irresponsible.
India’s real estate is going through a major crisis. There was nothing in the budget that would give the sector a fillip. Anuj Puri, Chairman, Anarock Property Consultants said, “The budget’s pointed negligence of the real estate sector was puzzling as the previous budget envisaged an ambitious blueprint for India’s economic future. Real estate and economic growth were inseparable concepts across developing and developed economies.”
The front-page headline in The Economic Times said it all: “Destination: Recovery. Status: Delayed”. There is a reason to be worried. The economy was not offered the stimulus it needs to recover and grow again. Higher import duties could be counterproductive as it could make India uncompetitive in the long run. If the Sensex dived, it was because investors and markets were apprehensive of how things might further deteriorate making India unattractive to investors.
If the Sensex dived after the budget pronouncements it was because it caused panic among investors. Points out wealth advisor Rahul Vohra: “The new tax slab will discourage the youth from saving and the tax on Dividends to Investors will discourage those who have retired from investing in Mutual Funds.
The budget gave the opposition the opportunity to slam the government for not addressing the unemployment crisis and not coming out with a concrete roadmap to reverse the economic meltdown.
Senior Congress leader Ahmed Patel who often advises Sonia Gandhi said that with piecemeal measures, repackaged schemes, jugglery of tax slabs and no real solutions, and squeezing the Life Insurance Corporation out of profitability, the government was trying to rescue itself.
However, Prime Minister Narendra Modi said that the budget had both vision and action which would increase income, investments, demand, and consumption bringing a new energy to the financial system and credit flow. There was no explanation as to how all this would happen.
Apologists for the government say that this is not a bad budget considering that Sitharaman had little fiscal headroom in an unconducive macro-economic environment and that was little she could do. One will have to see how earlier government moves like a corporate tax cut, creating a fund for stressed real estate projects, and a national infrastructure pipeline pan out this year.
It is highly unlikely that the mammoth reinvestment target will be reached. It is not going to be easy to sell Air India, for instance, despite efforts to woo buyers. This year’s disinvestment proceeds will be lower than the target of Rs. 1.05 lakh crore. This is now quite evident. So, the target for 2021 fixed at Rs. 2.10 lakh crore is just too ambitious and unrealistic.
The new tax regime of opting for an alternative filing plan without accepting any IT exemptions is confusing. Many wonder if it would be worth it. Even experts are wondering if it will ever lead to larger spending. The suspicion is also because of earlier government moves where it makes a concession and then creates an avenue to take back the benefit through another route.
India today offers envious opportunities. It has a fantastic demographic dividend of having the youngest population. But for positive spin-offs from it, they have to be educated, have skills training and have job opportunities. The budget did not indicate that any of these were priorities.
India will have around 1.5 billion people in another ten years. If there is steady growth over a decade, 40 percent would graduate to being in the middle class. It means that 600 million consumers with purchasing power egging on the economy to grow. But where is the evidence of this happening?
Modi’s target of India becoming a 5 trillion dollars economy before the next parliamentary elections now looks very bleak considering the sluggish growth at present and lack of action that could make a difference. The current GDP is $2.7 trillion.
If the government concentrates on narrow and silly issues related to religion, communalism, exclusion of minorities, and catering to the lowest denominator of public taste, there is nothing that will make the economy grow dramatically. It has to bring in big bang reforms, not cater to the populist sentiment just hoping to win elections and systematically work towards building a wounded economy.
There are no short cuts. India cannot afford to lose any more opportunities as other countries are racing to the top of the world. Empty slogans will no more work.
(Published on 10th February 2020, Volume XXXII, Issue 07)