The last year has been a difficult one for our honourable Prime Minister. He had famously aimed that he was a lucky charm for the economy and therefore India reaped a windfall when oil prices fell. For the first three years the Modi Government used cheap oil imports and high taxes on fuel to fund its expenditure on various fancy schemes. However, last year saw the Modi luck run out.
Oils prices soared. Exports slid further. Private investment came to a standstill. Four years of joblessness came to roost as the number of job losses due to demonetisation became known. Farm distress caused huge rural unrest. The Sensex became the most volatile market in Asia. And when the rupee tanked going further and further down to cross 74 to a dollar, the world started wondering if the Indian economy is indeed a safe destination for their investments.
Arun Jaitley would have liked to read out his last speech as Finance Minister on February 1 next week. If only to reassure us, in his own aggressive style, that everything is absolutely fine. Unfortunately, he is extremely unwell and had to leave for the US at this most important time in his life and his government’s. It is not only for sentimental reasons that he would have dearly lied to present the budget, even if it is an interim one before the full budget that will be presented by a new government in June.
The reason this budget is critical is that it will underline the achievements of the government over the last five years and make many new promises, keeping the election in mind. For a beleaguered Modi, it was critical for his most trusted minister to be with him as he gets ready for his toughest election ever. It is always tough preparing for a budget in an election year. The party expects you to give out generous handouts to all potential constituencies.
There is no question of taking any harsh decisions like increased taxes, lowering of subsidies or increase in passenger fares even if you are hard pressed for revenue mobilisation and even if debt is going up like never before. Under Narendra Modi, the central government debt has increased by 49 per cent to Rs 82 lakh crore today.
When the NDA government took over in 2014, the debt stood at Rs 54,90,763 crore, according to the Finance Ministry’s data released last month. While the country’s debt has been on the rise, the fiscal deficit has been going up steadily. In the first eight months till November 2018, the fiscal deficit stood at Rs 7.17 lakh crore, or 114.8 per cent of the Rs 6.24 lakh crore full year’s target.
On all other fronts too, the government is going to face big trouble with respect to finding money to finance the expenditure. The best example is education. India’s Union government spends Rs 50,000 crores on education but education’s share in the total union budget fell from 2.55% to 2.05% during Modi’s regime. India spent 4.38% of its GDP on education in 2016, slightly more than China (4.22%), Russia (3.82%) and (4.21%) but the quality is very poor. According to the Annual Status of Education Report (ASER) 2018, standards have been falling year after year and now in rural India, almost half of grade V students cannot read a Grade II text and more than 70% of them cannot do division! Schools need infrastructure. Teacher-vacancies need to be filled and all this will need a huge increase in the education outlay. Similar problems are being faced in the health sector.
The Prime Minister launched Ayushman Bharat and his loyalists immediately named it Modicare, calling it the world’s largest healthcare program. However, there is very little money that is allocated to this project that would take care of 50 crore people over the next three years. For a scheme that needs at least 50,000 crores, the allocation last year was a measly 2000 crores. Thai budget will have to match the desired figure but the Government has very little fiscal space. The allotment to health will only go up if this is seen as an election issue. Else, India will continue to be among those few poor nations where the entire health sector gets less than 1 per cent of GDP. Beyond all this, speculation that is rife is that there will be a major announcement soon.
Some people expect the much-dreaded ordinance on the Babri Masjid but given the uncertain relationship that Modi has with the judiciary, this ordinance will be a big risk and the gamble might just prove self-defeating. However, if pushed to the wall, and with no other gimmick up their sleeves, the Government might just play this last desperate trick. It could also just go in the other direction and announce large cash transfers for the poor and the farmer. The apparent success of the Rythu Bandhu scheme in Telangana is surely going to encourage different Government’s to do the same. Giving 4000 rupees per acre per year might not be a big burden at least for states that generate reasonable revenue. And for the poor states, the Central government might step in.
On the tax front, will the Government deliver on its long-standing promise to the middle class of increasing the minimum taxable limit? With the 10 per cent reservation quota, the intent to raise it to 8 lakhs is very clear. But the problem that will arise is that nearly half the taxpayers are in this 2 lakh to 8 lakh category. Increasing the taxable limit will result in a sharp fall in revenue collection. Such a huge fall the government can’t afford. Also, the signal it will send to taxpayers is entirely negative.
All in all, the Modi government is in all sorts of trouble. It seems to also have hit extremely bad luck with senior ministers getting unwell and having to stop working. There is now greater burden on Amit Shah and Modi to deliver yet another victory. With their hands tied by joblessness, agricultural distress, global slowdown and voter anger, the BJP is looking lost at the moment…how to take new and bold decisions? In a tight fiscal situation, the new Finance Minister, Piyush Goyal, will find his position extremely difficult to handle.
There are farm loan waivers being handed out in state after state. These impose huge problems for all governments who face electoral anger if they do not join the race. Goyal will not be able to roll this back, in fact he will be expected to give several more gifts to farmers and to rural India. All polls suggest an alarming dip in popularity for the BJP and its leaders, especially from the villages. The Finance Minister will have to do something remarkable if these voters have to be brought back again into the fold. However, the situation even now seems to suggest that whatever is done will be seen as action taken very late and is unlikely to help the party in the elections.
[Dr. Amirullah Khan, an authority on Developmental Economics, is Professor of Economics at MCRHRDI, Government of Telangana, and teaches at the ISB and NALSAR in Hyderabad]