This was the first budget of the Modi government after coming back to power with a brute majority. A lot of people were talking of big-bang reforms taking a cue from the assertion by Vice Chairman of NITI Aayog that the first 100 days of Modi 2.0 will be marked by “a slew of big-bang economic reforms that should please foreign investors” which would include “changes in labour laws, privatisation moves, and creation of land banks for new industrial development”. The realists and astute economic and political analysts however take such declarations with a pinch of salt and correctly predicted that the Budget would be marked by “incrementalism and symbolism’’ and would be “more rhetorical and less mathematical’’.
With the much-touted tag of the “first full-time woman finance minister of India” – Nirmala Sitharaman carrying a “bahi-khata” (ledger) containing the budget documents instead of the traditional “British era” brown leather briefcase, with her Chief Economic Advisor (CEA) Krishnamurthy Subramanian saying: “It is in Indian tradition. It symbolizes our departure from slavery of western thought”, one could sense that this Budget would be designed to fetch the desired optics for the government and will try to please only those who matter to the Modi regime.
Hike in fuel prices and tax relief
The price of diesel and petrol has been raised by imposing special additional excise duty and a road and infrastructure cess. This is bound to pinch the pocket of the common man and have a cascading effect on the overall inflation, transport costs and food prices. Besides there was no new relief granted on the personal income tax front.
India is facing a declining GDP since the last many quarters and there is an urgent need to stimulate the economy by reviving growth. Increase in domestic consumption and aggregate demand can only happen when lower- and middle-class households have disposable income which has been severely hit by fuel hike and absence of tax relief. Without stimulating growth, the huge challenge of tackling unemployment (which is at 45-year record high) will even become more daunting and may result in social and labour unrest.
Addressing the agrarian crisis
One of the most disappointing aspects of the Budget was the lack of definitive decisions regarding food and fertilizer subsidies and cropping patterns. With no concrete data about current agricultural households and farmers income, talk of doubling farmer’s income by 2022 seems empty rhetoric and there is an urgent need to first come out with updated agricultural data. The Pradhan Mantri Kishan Samman Nidhi (PM-KISAN) scheme announced in the interim budget in February 2019 which envisaged an annual Direct Benefit Transfer (DBT) of Rs 6000/- in three instalments (to be deposited directly in the bank accounts of farmers) was allocated Rs 75,000/- crores.
As this scheme is not applicable to tenant farmers, landless farm labour and sharecroppers, a large section of those involved in agricultural activities have been left out and there are no specifics as to how rural income and demand will expand given the sharp fall in agriculture prices.
Fiscal prudence or crisis
One area that has been almost unanimously criticised by – whom the PM mocked as “professional pessimists”, is the fiscal math that has been conjured to meet the expenses outlined in the Budget and setting a target of becoming a $ 5 trillion economy in the next five years. For example, as the table below (Business Standard – 06 July 2019) suggests – there has been a reduction in expenditure and an increment in the tax collections over the last few years.
| 2014-15 | 2018-19 BE | 2018-19 RE | 2018-19 ES* | 2019-20 BE | |
| Total expenditure (% GDP) | 13.34 | 13.0 | 13.04 | 12.2 | 13.2 |
| Fiscal deficit (% GDP) | 4.1 | 3.3 | 3.4 | 3.4 | 3.3 |
| Revenue Receipts / GDP | 8.83 | 9.18 | 9.18 | 8.2 | 9.3 |
| Tax-GDP ratio | 7.25 | 7.88 | 7.88 | 6.9 | 7.81 |
| BE- Budget Estimate RE – Revised Estimate ES – Economic Survey * CGA data | |||||
This fiscal prudence (sticking to the accepted norm of 3.3% of GDP) however will be severely challenged by the declining tax revenues (it grew at less than 9% last year and is expected to grow at 15% now) and compounded by the fact that GST collections are dropping as reflected in the 2019-20 Budgetary Estimate data. So, unless GDP growth picks up sharply, GST collections climb and disinvestment targets are met aggressively the earmarked expenditure will have to be reduced in the end – proving that all this talk is nothing but “jumlabaazi” (empty rhetoric) and data jugglery.
Growth and jobs
If we analyse the Budget speech of the Finance Minister, the word “poor” occurs only once, the word “gharib” also appears once, the word “jobs” occurs only twice and the word “employment” appears five times. The budget is silent on the failed promise of the Modi 1.0 regime that assured the nation to deliver 2 crore jobs a year which translates to 8.4 lakh jobs a month. With demonetisation and GST delivering a crippling blow to economic growth, it was expected that Modi 2.0 would unveil some innovative ideas for growth and jobs (like the setting up of a National Employment Board and a National Employment Mission – suggested by the CII) but the allocation to the avenues where there could a semblance of providing employment opportunity has either been slashed or received very meagre disbursement. MNREGA, Skill India, Digital India and Make in India are a case in point.
Sovereign bonds
The government announced, through the Budget, its plan to raise part of its borrowing from overseas market in foreign currency through sovereign bonds. It indicates that the government is not able to service its deficit with domestic borrowings. This is not a good idea and may result in greater exposure to external shocks and a possible reduction in our control over financial and monetary policy. The Government is advised to learn a lesson from how the economies of Brazil, Argentina and Mexico were compromised by treading this path.
The mother of all problems
In all the budget analysis there is one problem which is completely overlooked by all economists and financial experts, which is the expenditure towards payment of interest. According to Trading Economics – “India recorded a government debt equivalent to 68.70 per cent of the country’s Gross Domestic Product in 2017. Government Debt to GDP in India averaged 73.24 per cent from 1991 until 2017, reaching an all-time high of 84.20 per cent in 2003 and a record low of 66 per cent in 1996”.
A significant portion of that debt goes into interest payment that has accrued over the years on account of the colossal debt taken from various lending agencies and banks at different rates of interest. Islam prohibits interest and encourages equity participation. Imagine the revenue that can be saved if we manage to eliminate this burden off the taxpayer’s shoulders. It calls for a paradigm shift in our worldview but one which we have to move towards sooner rather than later given the unsustainability of our current economic regime.