Expert Speak India Matters
Published on Jul 09, 2019
Finance Minister Nirmala Sitharaman seemed to be the chief protagonist of Prime Minister Narendra Modi’s dream of India becoming a $5 trillion economy.
Budget 2019: A confused path to $5 trillion dream? Budget 2019-20 has been a bit of a disappointment for those who expected big bang reforms and strong policy statements that would rekindle the animal spirits of the presently downcast economy. Finance Minister Nirmala Sitharaman seemed to be the chief protagonist of Prime Minister Narendra Modi’s dream of India becoming a $5 trillion economy. The roadmap for reaching such a dream by 2024, however, seems a bit confusing with many diversions on the way. In any case, it is the lives of individual citizens that matter rather than how big an economy is measured in terms of GDP. In some ways, however, the Budget has tried to address the question of improving the lives of the common person living in urban and rural India which makes more sense than waving the flag of a $5 trillion economy. The Budget has spelt out the problems India is facing, clearly laying the emphasis on infrastructure development for taking the economy to the $5 trillion level which will require Rs 100 lakh crore in the next five years. The Prime Minister’s own imprint, however, was clearly visible in this year’s Budget. One such scheme is the pension scheme for small shopkeepers and retailers of less than Rs 1.5 crore turnover. It will benefit three crore ordinary people in retail.

In some ways, however, the Budget has tried to address the question of improving the lives of the common person living in urban and rural India which makes more sense than waving the flag of a $5 trillion economy.

Also, that the Government has not forgotten the village artisans and their difficulties in earning a livelihood is probably also Modi’s brainchild. New initiatives in the Budget for cluster-based development of village industries are important today to preserve India’s fine traditional handicrafts and making them sustainable. It is noteworthy that 50,000 artisans are likely to join the economic value chain and benefit from the proposed innovations in the rural industry which will make them competitive and resist extinction. Emphasis on rural connectivity is also very important for increasing the incomes of the rural population and it is heartening to learn that 125,000 km of rural roads will be ungraded at a cost of Rs 80,250 crores. A number of other initiatives to encourage agro-processing industries and use of e-NAM (National Agriculture Market — an electronic trading portal for farm produce which creates a unified national market) for better price realisation by farmers, will help revamp the rural economy. For e-NAM to function properly, regular supply of power in villages would be crucial and the Finance Minister assured the House that it is going to be a reality soon.

Emphasis on rural connectivity is also very important for increasing the incomes of the rural population and it is heartening to learn that 125,000 km of rural roads will be ungraded at a cost of Rs 80,250 crores.

The Budget has also focused on the important area of affordable housing — a crying need for the majority of low-income groups today. India cannot be a $5 trillion economy with sprawling slums in the midst of urban areas as is the case of Mumbai and Kolkata. The Finance Minister promised that 1.9 crore more houses will be provided by 2022 and pointed out that it takes much less time to complete houses today than it took in 2014. Hence, housing for all by 2022 is achievable. Similarly, the water situation, which has reached a crisis point in India recently, has been amply addressed in the Budget with the promises of getting piped water in every household by 2024. The reality today, however, is shocking because three fourths of all households lack drinking water in their premises and 5 out of 6 rural households do not have access to piped water supply. Agriculture, which accounts for four-fifth of water demand, requires heavy public investment in irrigation canals about which nothing much was said. Similarly, on the healthcare in villages, there was no mention of strengthening primary health centres. Recently, the death of 150 children from Encephalitis in the Muzaffarpur district (Bihar) had attracted worldwide attention on the scarcity of doctors, nurses, medical supplies and beds in India’s villages. Surely, a $5 trillion economy should have a smooth functioning healthcare system.

Recently, the death of 150 children from Encephalitis in the Muzaffarpur district (Bihar) had attracted worldwide attention on the scarcity of doctors, nurses, medical supplies and beds in India’s villages. Surely, a $5 trillion economy should have a smooth functioning healthcare system.

As expected, the Finance Minister in her Budget speech had something special to be said about women and her quote from Swami Vivekananda was very appropriate. To encourage women’s participation in business, women members of SHGs have been given overdraft facility of Rs 5,000 and women entrepreneurs have been encouraged by giving them interest rate subvention. The job question remained unaddressed largely except for promoting skill development for youth and starting a new TV programme for startups which would bring young entrepreneurs in touch with venture capitalists. The revamping of PSBs was expected because of the ongoing crisis in the NBFC and PSB sector. Hopefully, the new injection of more money (Rs 70,000 crore) in the PSBs will bring the crisis to an end because the smooth flow of funds to the MSME sector is important for the Government to carry forward its Make in India initiative. MSMEs have been allocated Rs 350 crore at 2% interest rate subvention for all registered units for fresh or incremental loans.  Easier loans to MSMEs will strengthen their production base and make them more competitive.

Increase in excise duty and the road cess of 1% on petroleum and diesel is bound to disappoint the market and the increase in the custom duty on gold and other precious metals may cause problems to the jewellery making sector, which is already suffering from the withdrawal of GSP by the US on jewellery imports.

On the taxation side, no new sops were offered either for the middle class or for the corporate sector which may be a big disappointment for most. To encourage digital payment and discourage cash payment, a Cash Deduction at Source Tax of 2% would be imposed on cash withdrawal of Rs 1 crore. Many would find this a useless way to control cash transactions. Increase in excise duty and the road cess of 1% on petroleum and diesel is bound to disappoint the market and the increase in the custom duty on gold and other precious metals may cause problems to the jewellery making sector, which is already suffering from the withdrawal of GSP by the US on jewellery imports. The additional surcharge on the super-rich will not be a controversial subject because India has a high degree of inequality and the super-rich are still not that many. Yet, the 102 dollar billionaires and 34,300 dollar millionaires are bound to mind! But, they really do not matter to the Modi government currently which seems to be carrying forward its agenda of caring for the poor — Gaon, Garib and Kisan.
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David Rusnok

David Rusnok

David Rusnok Researcher Strengthening National Climate Policy Implementation (SNAPFI) project DIW Germany

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