Union Finance Minister Nirmala Sitharaman’s maiden budget presentation has received several bouquets and brickbats at the same time. Analysts claim that there is less probability of this budget to boost the domestic investment and hence develop public investment in the process. Instead, the scrutinisation of the budget shows that the government is now turning towards foreign countries to fuel the economic growth. While, in the latter quarter of 2018-19, the economy went up by mere 5.8%, the budget launch of this time went ahead with an assumption of a growth of 12%. This exponential rise has stirred skepticism among the masses and analysts who have autopsied the budget. However, one possible option to deal with this dramatic goal could be to boost public or private investments. Yet again with the kind of policies laid out, there is less scope for the present budget to enhance domestic private investment of any sort.
Incentives for private and public investments are rather low with a reduction in the capital expenditure of the central government by 6%. Records in the past century show that this is the only instance in the past 50 years where there has been a decline in public investment sphere. Not mentioning any schemes or further allocations in the speech by the Union Finance Minister further worsened things as it was also a breach of a decades-old convention. Yet another new direction that the government is steering its economy towards is the tendency of external borrowing. Since the external debt of India is less than 5% of its GD, the Finance Minister deemed it to be fine to expand in fields of external borrowing. Foreign Portfolio Investment (FPI) and Foreign Direct Investments (FDI) are to be raised with simultaneous flexibility induced in the rules for Foreign Institutional Investments (FII). This decision of the Finance Minister has yet again been criticized. This decision is in sync with the government’s action in the 1980s that ultimately resulted in “balance of payments crisis” in the 1990s. Questions have been raised regarding why the government is driving the country towards such a grave economic fiasco.
Prime Minister Narendra Modi had popularized the slogan of a $5 trillion economy mark that would be reached by India by the year 2024. The Economic Survey has shed enough light on it and this was reflected in the Union Budget as well. One thing that is problematic about celebrating the $5 trillion economy is that it is eclipsing the true fundamental of a good economy. Celebrating a larger economy could be fine but one thing that must be remembered is that a large economy is not essentially an economy that ensures everyone’s well-being. Reaching a $5 trillion economy with 90% of it being concentrated in the hands of 10% of India’s population wouldn’t make much of a difference.
What could have instead made a difference was delivering more jobs and improved working environments. In this context, yet another bizzare observation in the Union Minister’s speech was that the word “jobs” wasn’t mentioned even once. The second bizzare observation in Finance Minister NIrmala Sitharaman’s maiden Budget speech was that she spent more than an hour elucidating and highlighting the achievements of the previous government. She even illustrated 10 points which had previously been considered the goal for the entire decade in the interim budget.
The entire approach of the Narendra Modi Government to the Union Budget seemed like focusing concentration on a handful of welfare schemes that include flagship yojanas like Ujjwala Yojana, Jan Dhan, Swachh Bharat and more. The real change and investment was left to the hands of private organisations. Six major schemes were labeled “core of the core schemes” that included the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) and the National Social Assistance Program. As opposed to an allocation of 84,361 crores in 2018-2019, this year the allocation has been 81,863 crores. When the usual 3% inflation is taken into account cumulatively with the reduction, it becomes glaringly visible as to how the cut is significant and the allocation redundant. Similarly, allocation for all such schemes has been reduced in comparison to the previous years. Focusing too much on the government’s commitment to project that fiscal deficit is projected at 3.3% in the year 2019-20 makes it difficult for the Finance Minister to find resources for schemes even after significant reduction in allocation.
Budget presentation for this year was a challenging task for Nirmala Sitharaman. She had less than one month to bring forth a magic budget that would transform India’s economy overnight. She had to strike a balance in measuring stimulus, being fiscally responsible and at the same time stick to the fiscal deficit projection of 3.3%. In a constrained environment where revenues obtained from tax are not enough for a stimulus, it is impossible to follow the above mentioned perfectly balanced budget formulae.
A few other basic points in her policy was providing a relief to industries that churn a revenue of less than 400 crore rupees. In an attempt to provide a boost to small scale industries and incentivize “angel investors”, this was a much appreciated move. At the same time, companies that earn a huge profit would not be allowed to escape from paying their share of taxes as well. The corporate tax rates for small scale companies being kept low was viewed as positive tax reform in this year’s budget formulae. In addition to that, quite a few points were listed in order to make the parameters affecting Non-Banking Financial Sector more flexible. The Reserve Bank of India had limited control over NBFCs and hence she took steps to strengthen the foothold of RBI in this regard.
Amidst all the technical terms like fiscal deficit projection and liquidity to NBFCs, several middle class people still wonder if this budget would help them in terms of better work environment, employability or a higher pay. While external borrowing and targeting $5 trillion economy may be a great idea, creation of jobs would have still been even better. Only time can tell if the aims set out by this budget will truly reap benefit for those who need it the most.
Picture Courtesy- BW Business World