Great Budget, But Where’s the Money, Honey?

By Ashwin Tombat
07 July 2019 13:07 IST

Union Finance Minister Nirmala Sitharaman’s budget — presented in Parliament on Friday 5 July — pursues Prime Minister Narendra Modi’s target of making India a $5 trillion economy in five years. It seems pro-poor. It taxes the super-rich. And it has schemes for nearly every sector of the economy.

The push for electric vehicles, PAN-Aadhaar interoperability, a one-nation RuPay transport card, Rs75,000 crore to rehabilitate PSU banks, angel tax-break for start-ups, pension for informal sector workers and small traders, reform of rental laws, the focus on gaon, garib and kisan, increase in interest concessions for housing loans as well as for the micro sector, extension of pension schemes, etc, are major positives.

There’s a 75 per cent increase in the allocation for farmers. There’s water conservation. A boost for medium and small industrial enterprises (MSMEs). Housing, water and electricity for all. The budget has something for each and every section of society…

But there’s no joy in the jobs sector. The budget talks of skilling youth so they can go abroad to work. It is an admission of the bleak jobs situation in the country.

Basically, any budget is an estimate. It’s a statement of intentions. It presumes the government’s estimated income, and plans its proposed expenditure. But will the projected income materialise? Is the expenditure allotted sufficient?  

In this, the budget gives cause for concern. For the first time in living memory, the budget speech did not quantify the revenue implications of the budget proposals. The budget deficit was buried in a supplementary statement.

The growth rate of India’s economy is slowing. The latest quarterly gross domestic product (GDP) growth rate was down to 5.8 per cent (government data). It is likely to fall further in the first quarter (April to June) of this financial year. Can the budget kick-start it?

Building a real GDP of $5 trillion requires that inflation is factored in. To achieve a real rate of growth of 8 per cent, one needs an average nominal growth rate of 11.5 per cent over five years. We are at 5.8 per cent currently. Is it possible to go to 17 per cent at the end of the five-year period, when even a nominal 8 per cent rate of growth looks difficult right now?

The arithmetic of the present budget assumes a nominal growth rate of 12 per cent, while the current nominal growth rate is about 8.5 per cent. Unrealistic projections result in revenues falling short. Then, to maintain the fiscal deficit target, expenditures have to be cut. That is exactly what happened last year. In such circumstances, it would be difficult to raise real GDP growth even to the estimated 7 per cent.

India is facing a lag in demand — seen in a floundering real estate sector, a slump in auto sales and slowing growth in even fast moving consumer goods (FMCG). To boost demand, the budget needed to increase capital expenditure. But, according to Prof Arun Kumar of Jawaharlal Nehru University (JNU), it has been cut from Rs9.29 lakh crore to Rs8.76 lakh crore.

In these circumstances, he says, spending Rs100 lakh crore on infrastructure in five years looks to be a very difficult target. To achieve it, the budget should have earmarked twice the money it has allotted this year. Or are these resources going to come from the private sector?

But the growth of private investment in India has been abysmal; the overall rate of investment has stagnated at around 30 per cent. One reason is the decline of the unorganised sector following demonetization. The goods and services tax (GST) and, later, the non-banking financial companies (NBFC) crisis led to a decline in credit, weakening demand, employment generation and the agriculture sector.

To reverse this, the government needs to boost purchasing power in the hands of the poor. That needs massive resources. February’s interim budget allotted Rs75,000 crores to farmers. Mrs Sitharaman has declared that allocation for agriculture will increase by a hefty 75 per cent in this budget. How is the government going to raise these resources without allowing the fiscal deficit to rise?

The Finance Minister does not know. She is going to appoint a committee to find out how to mobilise this kind of money...!

To boost resources without raising the fiscal deficit, one needs to increase taxes. But the government cannot raise GST; only the GST council can. That leaves direct taxes and petroleum products. Mrs Sitharaman has increased both. In addition to a one-rupee cess per lire of petrol and diesel, she has raised income tax on those earning more than Rs2 crore. But the latter will yield little additional revenue.

The budget does appear to do a lot for different sections of the population. The big question is, do we have the resources needed to give the immediate stimulus required to raise the rate of growth? If not, the economy may slide further down a slippery slope.

Disclaimer: Views expressed above are the author's own.

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Ashwin Tombat

Ashwin Tombat has been the Editor of Gomantak Times and Herald. Worked as an Associate Editor of national magazine Gentleman in Mumbai, before shifting to Goa. Loves sailing, also participates in Marathons. Has worked as an activist in students's union and trade unions in Maharashtra. Also an artist of Street Theatre during student days.

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