At the ORF roundtable discussion on the Union Budget there was much animated banter on whether this year's 'bahi-khata', as the annual account of how Government proposes to spend public money is to be known now onward in keeping with the spirit of Quit India 2.0, is "a budget for the poor" or "a poor man's budget". In the era of nuance-free public debate conducted through social media, such fine distinctions of the English language possibly do not matter anymore. Nuances apart, a conflation of the two to describe this year's budget would perhaps not be misplaced.
In other words, NDA 3 could have done a far better job of framing a populist budget for the poor without turning it into a poor man's budget, that has left the best brains in the country wondering how this year's ‘bahi-khata’, devoid of crucial numbers, actually serves the stated goals of kick-starting the stalled engine of growth, creating jobs and dazzling the world with an all new production of the 'India Story' – all of it by dedicating Government to the service of the poor. The treacly 'thank you' note to taxpayers, namely the salaried classes and entrepreneurs, was indication enough that this budget was not meant for them, never-mind Prime Minister Narendra Modi's solemn acknowledgement two years ago that their time had come.
So broadly here's what we have. The single biggest increase in allocation is for the farm sector, or to be precise, for farmers by way of cash handouts. Team Modi could have gone to town with this allocation. But it did not. From Finance Minister Nirmala Sitharaman's speech it would seem that realisation had at last dawned that agriculture was a State List subject and the Centre's role should be no more than that of a facilitator. But the expanded dole and a wishy-washy reference to impediments to farm sector growth like the APMC would belie that impression. The promise to double farmers' income by 2025 has been reiterated. Nobody knows for sure what is being done to achieve that target through efficient land use and increased productivity. At the moment, an elusive monsoon and potential drought is of topmost concern.
A whopping Rs 70,000 crore has been gifted to public sector banks and some more to NBFCs -- which could well be described as reward for inefficiency and worse leading to gigantic NPAs. Recapitalising banks to restart big ticket lending and spur credit offtake, and in turn reignite investment, is not a bad idea per se. But what is the road map ahead? Can the economy absorb fresh investments in the absence of demand? More important, is there a guarantee that banks will not be left holding the proverbial can as borrowers either shrug their shoulders (Jet Airways) or settle down to country life in Britain (Kingfisher Airlines)?
Government investment in infrastructure is a surefire way to revive core industry, fuel growth and restore investor confidence apart from creating jobs. Towards that end, embracing an ambitious outlay of Rs 100 lakh crore for infrastructure creation over five years is an excellent idea. What is discomfiting is that we do not know, where this money is going to come from. In this budget all investments taken together have been pegged at Rs 33,000 crore. To meet its Rs 100 lakh crore target, infrastructure alone would need Rs 20 lakh crore. Even if this were to be partly financed by the private sector, Government would still need to come up with a sizeable amount.
With its humongous majority, a 350-seat Government was expected to be more daring and risk-taking than tinkering with marginal taxes to, in a manner of speaking, fleece the rich to feed the poor. In the afterglow of his sweeping victory, Modi Ji, whose absolute power in government and authority in party have made him Modi Xi, could have and should have signalled a firm and irreversible departure from statism and fetish for the public sector through structural reforms, opening up the economy and giving primacy to forces of market (and merit) without compromising an inch on national interest.
Sadly, he did not. This is reflected in the modest 'strategic disinvestment' – not strategic sale or outright privatisation – of our white elephants which, to paraphrase the parable cited by the Finance Minister, continue to trample upon and lay to waste the harvest of public finances. Setting a target of Rs1,05,000 crore through strategic disinvestment is an incremental Rs 20,000 crore increase over that set in the previous budget. Nearly two-thirds or more of it will go into meeting government expenses that have nothing to do with either asset creation or investment. Even if say, all of the Rs 33,000 crore earmarked for investment were to come from strategic disinvestment, then where does the remaining Rs 72,000 crore go? Social welfare?
In which case, why increase Central duties and cess on petrol and diesel whose cost will now shoot after VAT and other applicable taxes are adjusted upward of what they are now? But we have given you benefits on the purchase of electrical vehicles, government would argue. This is akin to swapping the real for the unreal. Just as it is silly to believe removing the exemption of 10 per cent Basic Customs Duty (BCD) on newsprint or imposing a 5 per cent BCD on imported books and journals (what happens to the existing 10 per cent BCD on books that has been exempted so far remains unstated) would lead to 'Make in India' and 'Publish in India'. We have gone through this during the debilitating pre-1992 socialist era.
But this is not all that harks back to the glory days of pre-1992 Nehruvian socialism reinforced by Indira Gandhi's smash-and-grab economics of state empowerment. The surcharge imposed on high income earners, pushing up their tax burden by 3 to 7 per cent and refixing the income tax ceiling at 42 per cent, will not earn the government any substantial amount of money though it may give Thomas Piketty some satisfaction that while the Congress has lost, his squeeze-and-tax prescription has won. What it will do is signal where NDA3 stands on wealth and wealth creation: Neither is good nor desirable. Left-Liberal is not an oxymoron nor is Right-Socialist. Such are the times we live in.
So where will growth come from? The wealth creator is also the job generator. How does punishing the former promise the latter? The government remains tightlipped on the much-promised Direct Tax Code. The government remains unwilling to widen the tax base. The government is not keen to raise resources through indirect taxes spread equitably across the board. And, the government is saddled with a GST regime that has begun to creak and could cave unless overhauled thoroughly. Simplifying paperwork is like holding the deeply flawed GST regime together with a cellotape.
The list of riddles in the government's ‘bahi-khata’ (like the bahi-khata of all traditional Indian business houses which for long and obvious reasons have maintained two account books) is by no means short. An example would suffice. India's steel industry, apprehending a glut of imported steel caused by the Trump Trade War, has been seeking higher tariff barriers on flat steel products. Instead, in its infinite wisdom government has hiked the duty on semi finished stainless steel products. Steel shares have tanked. The cost of the ubiquitous stainless steel katora (bowl) is expected to shoot up.
Frivolous as it may sound, one takeaway from the 2019-20 ‘bahi-khata’ is that we may have to pay more for a stainless steel katora. But if that pinches us, we could always buy an electric vehicle and get tax relief on the interest we pay on the large bank loan we will need to buy it. Don't forget that the sarkari banks and NBFCs have been pumped with a fresh dose of money to lend. Grab it while the going is good.
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