Event ReportsPublished on Feb 26, 2020
Budget 2020 lacks ‘sense of urgency’, says analyst

“Budget 2020, Union Finance Minister Nirmala Sitharaman’s second one in a row, was badly packaged, poorly delivered and full of motherhood statements, i.e. feel good platitudes that have no real value,” remarked Dr. M R Venkatesh, an author-cum-analyst on political economy. Initiating a discussion on Budget-2020 at ORF, Chennai, on 8 February, Venkatesh said, “Looking at this budget, there seems to be a disconnect with its core constituency. It gives the impression that it was a half-hearted affair. There was no sense of urgency.”

According to Venkatesh, through the past year, there have been massive implementation and delivery issues that this budget paid no attention to. “Several declarations made in the previous budget still seem to be in its embryonic stage even now. ‘Skill India’ and Low-Cost Housing are among these. Rejuvenation of water bodies, under the NREGA, though on paper it seems to be completed, in reality there are huge implementation issues. The budget should have addressed these,” he said.

“Every budget must be understood within context,” explained Venkatesh. First, there is the global context. This includes the global headwinds that affect growth such as global viruses, financial crises etc. Judged against this, Budget 2020 did not display a sense of urgency, he felt.  “For instance, there was no reference to the coronavirus. Is India prepared? What are the precautions being taken? These are questions that the budget should have considered.”

Cyclical and structural issues

Second, there are cyclical issues vs structural issues when it comes to economy. Cyclical issues might be issues such as climate change affecting the production of wheat. As these are not necessarily seen as solely a government problem, the government is willing to discuss these. “On the other hand, no Finance Minister wants to discuss structural issues, because they know these cannot be wished away in a budget,” he remarked.

“There are several glaring legislative issues, some laws are just confusing,” said Venkatesh. The anti-money laundering law was among these. The direct tax structure was in need of simplification, but instead,  he said, “they have just ended up further complicating an already convoluted tax structure.” “Why are there two different tax structures and tax rates for the same individual?” he asked.

Venkatesh also discussed the proposal to tax NRIs in India and was critical of it. The government has explained the proposal as being an anti-abuse provision to be taken against Indian citizens who shift residence to low or no tax jurisdictions to avoid paying tax in India. Owing to the public backlash, a press release later clarified that, “the interpretation of the proposed provision that those Indians who are bona fide workers in other countries, including in Middle-East, and who are not liable to tax in these countries will be taxed in India on the income that they have earned there, is not correct.”

However, Venkatesh felt that it was these aspects of the budget that lent it an image of being badly packaged and poorly delivered. He argued, “it doesn’t make sense to create unrest among 3.5 Lakh people in order to catch 15,000?” In his opinion, the were more urgent problems that the budget should have focused on.

On the number of projects announced under the PPP Model, Venkatesh felt “it is clear this has not worked. The PPP model has been a disaster. There are Rs. 80-lakh crores of projects have been stalled.” Venkatesh argued that there was a severe governance deficit that first needed to be addressed. “Contracts with the government invariably end up in litigation. So, whenever there is a bad administrative decision by the government, you have to necessarily go to court. That takes time and money, and affects your confidence in doing business.”

Administrators vs entrepreneurs

There is both a crisis of competence and integrity that is leading to a governance-deficit, Venkatesh claimed. In terms of policy recommendations, he said, “First and foremost we need to address issues of governance. We need serious administrative reform, at least 20 government ministries need to be closed down, there is no sense in having a separate textile ministry and steel ministry. Lateral entry is needed.” He also recommended where companies were shifting operations, for instance, Kia motors was rumoured to be moving out of Andhra Pradesh, the government ought to do exit interviews to understand why this was happening.

“In India, there is a war going on between the administrators and the entrepreneurs for the last ten or twelve years” said Venkatesh. “The entrepreneur wants to do things, while the administrator wants to obstruct. We need to get out of this mentality. The administration needs to be sympathetic to the entrepreneur” he believed.

The speaker admitted that there are businesses that don’t play by the rules and those need to be regulated and kept in check. “However, SMSEs largely are playing the rules and don’t want so much government interference and they are the main engines of growth that will take the India economy to $5 trillion. Unfortunately, this budget does not reflect this goal with any sense of urgency. This budget sides with the bureaucracy by giving officers sweeping powers but truncated responsibility,” lamented Venkatesh.

In conclusion, Venkatesh said, “There is no ease of doing business in India. Ultimately India will become a $5 trillion dollar economy, whenever that happens, it will be despite the government not because of it.”

This Report is prepared by Dr. Vinitha Revi, Independent Scholar, Chennai

The views expressed above belong to the author(s). ORF research and analyses now available on Telegram! Click here to access our curated content — blogs, longforms and interviews.