The Indian economy is demand-constrained and investment-starved. The FM has not acknowledged these two challenges
This budget was meant to increase consumption, encourage spends among the middle class, stimulate growth and primarily put the economy back on the road to recovery. Yet the reality is that far from being memorable, it is a damp squib without any sense of urgency to mean business. The story can be summed up easily. The GDP growth is the lowest in 11 years. The government estimates nominal GDP for 2020-21 at 10 per cent. It is lower than the 12 per cent that was projected in 2019-20, which turned out to be only 7.5 per cent. Private consumption is at its lowest in seven years. Investment growth is at its slowest in 17 years. Manufacturing is the lowest in 15 years. Tax growth is the lowest in 20 years. Food inflation is the highest in six years.
The government has done very little to revitalise the economy, stimulate growth rate, promote private investment, increase efficiency, create jobs or boost the rapidly shrinking exports. In a nutshell, this budget has nothing to address the problems the country faces. I am totally confused with the multiple themes, segments and programmes. Ongoing programmes have failed but still this government is throwing more (and in some cases less) money into them. Will that change anything? There is no clear vision or articulated plan for market economy, competition or higher trade intensity. This government is in complete denial that the economy faces a grave macro-economic challenge and the growth rate has declined in six successive quarters. Show me one thing in this Budget that will revive growth in 2020-21. The claim of 6 to 6.5. per cent growth next year is shocking.
It seems to me that the government’s main source of revenue will be through the disinvestment of PSUs. The remaining government stake in IDBI Bank will be sold off. Also, a part of the government’s stake in LIC will be sold through an IPO. This explains the doubling of the disinvestment target from the current fiscal to the next one — from Rs 1 lakh crore in FY20 to Rs 2.1 lakh crore in FY21. Even the disinvestment target for the current fiscal has not been met — with only Rs 65,000 crore raised.
The Finance Minister (FM) stated that the government debt came down to 48.9 per cent from 52.2 per cent. This may be in part due to the unprecedented transfer of surplus from the RBI to the Central Government, to the tune of Rs 1, 76, 051 crore (0.8 per cent of GDP), in August 2019. This “quasi fiscal deficit” practice is against the basic principles of prudent fiscal management.
The FM claimed that “Inflation is well contained.” Yet inflation was 7.4 per cent in December 2019, a record high since July 2014. It is higher than the upper limit of the target inflation rate set by the RBI. (Target of four per cent, with upper tolerance level of six per cent, for the period between June 2016-March 2021).
The Minister claimed that the Government’s policy of Make in India has yielded “great dividends.” The scheme has not yielded its target dividends. Its first target was to increase the manufacturing sector’s growth rate to 12-14 per cent per annum, but the sector has only grown, on an average, at half of the targeted growth rate. In FY20, the manufacturing sector growth plummeted to a paltry two per cent. The second goal of increasing the share of manufacturing in GDP to 25 per cent by 2020 has also not been met since this figure has remained only around 15 per cent. The government is also clearly unable to meet its third target of creating 100 million additional jobs by 2022 in the manufacturing sector, given its refusal to provide numbers on how many jobs were actually created as a result of the scheme and the devastating figures provided by the NSSO, estimating the unemployment rate in 2017-18 at a 45-year high of 6.1 percent.
The Budget emphasises the importance of building a statistical system that has strong credibility and supplies data in real time. Yet, this Government has triggered the dismantling of statistical institutions in India — from mass resignations by statisticians, to leaked reports which the government refuses to acknowledge.
Five newer smart cities will be created. This is a meagre increment from the 100 designated already. Further, the Smart Cities Mission has been proceeding at a slow rate. At present, only 25 per cent projects proposed have been completed (1296 out of 5151) and a corresponding 11 per cent of funds have been spent on these completed projects out of the total proposed investment in the Mission.
And for all the bluster about development in Kashmir, the Minister made just a token reference to it, reciting lines from a poem by Pandit Dinanath Kaul. This is a mockery of the people of Jammu and Kashmir, who cannot even hear the FM because of the communications blockade still present in many parts of the region. Of course, she conveniently omitted his full name, which is Pandit Dinanath Kaul ‘Nadim.’ Clearly, the honorific was politically inconvenient.
With the Budget’s focus on wealth creation and a “caring society” and “Sabka Saath, Sabka Vikas, Sabka Vishwas,” the question remains for whom? According to last month’s Oxfam report, the top one per cent richest people in India owns 42 per cent of the wealth of the nation, which is more than four times the wealth of the bottom 70 per cent. The rhetoric of compassion and caring has no real world implications as the BJP has launched a campaign of vitriol against peaceful anti-CAA protestors, often provoking violence against them.
The Indian economy is demand-constrained and investment-starved. The FM has not acknowledged these two challenges. Consequently, she has proposed no measures or solutions to those two challenges. If the twin obstacles remain, the economy will not turn around and there will be no relief to the millions of poor and the middle class. This government has done nothing to get us out of the financial crisis we are in. Our past track record with this government shows it failed miserably on attaining any key targets — nominal GDP growth, fiscal deficit, net tax revenue collection, disinvestment revenue or total expenditure. What is the assurance that it will meet the targets set for 2020-21? It looks like the FM has outright rejected every reform idea contained in the Economic Survey.
(Writer: GOURAV VALLABH; Courtesy: The Pioneer)