It has been the repeated refrain of this government that it is doing all it can, and blame the rest on the Opposition, the previous government and so on. The same applies to the Union Budget. Broadly, Finance Minister Arun Jaitley spoke of the GDP growth rate — which has been called into question by economists all around — and CPI inflation of 5.4 percent while keeping silent about the crippling food inflation and Forex reserves of $350 billion. This figure is largely due to low oil prices and hence, low Forex Outgo, and not due to any policy-driven push to boost exports.
Further, the finance minister has shared no plans for deployment of this foreign capital.
Jaitley also spoke about bridging the trust deficit created by the previous government. If by this he refers to excluding the Opposition, fanning xenophobia against large communities of Indians, bad-mouthing predecessors on international platforms, or inept management of legitimate popular protest, the government’s efforts have been stellar indeed. Further, in a continued effort to weaken institutions, he announced setting up a Monetary Policy Panel by amending the RBI Act. RBI has earned laurels through prudent foresight during the 2008 crisis and has, over the years, evolved into a regulator that skillfully combines forbearance with effective oversight on the one hand, and using its toolkit to moderate inflationary pressures and business cycle.
Recapitalisation of banks is welcome, but not nearly enough. Most public sector banks would still struggle to meet global standards for capital adequacy norms. Merely tinkering with the shareholding structure of asset-reconstruction companies is not going to fix it. Bold steps in repossession of stressed assets, fire sales, and other measures to clean up the balance sheets of banks should have been thought of. Further consolidation will need a strategy to create Indian banks with an imposing global presence and safeguards against creating banks that are too big to fail; such a strategy is missing from the budget.
The budget is silent on details of defence spending.
It appears that the finance minister has mistaken OROP implementation with defence upgradation and internal security. So shortly after Pathankot, one would have expected the government to make suitable outlays in technology-based policing. Similarly, no accelerated timetable for technology induction and fleet modernisation has been laid out for the defence forces. With looming threats in the immediate neighbourhood such as Pakistan and China, unrest in Nepal and the Indian Ocean region, a proportionate budget allocation to mitigate existing and potential threats would have been in order.
The attempt at focussing on agriculture in the budget results from demands from the Opposition, agrarian unrest, farmer indebtedness and falling farm productivity, but in reality it stems from the upcoming elections in primarily agrarian states such as Bengal, Uttar Pradesh etc. However, no far-reaching steps have been announced to boost diversification, value addition, and non-farm sources of income. Interest subvention is not likely to ameliorate indebtedness of farmers when return on investment on farm inputs remains negative for small and marginal farms that support the bulk of our rural population.
MNREGA, much mocked by Prime Minister Narendra Modi upon taking office, has been allocated Rs 38,500 crore in Financial Year 2016-17. This is due to a great pushback by the poor of India, whom the Act protected against the worst poverty, and because of the government’s belated realisation of its role in building rural infrastructure. The government has not backed its slogan to double the income of farmers in the next five years with a concrete plan of action.
Like other slogans and alphabet soups such as Make in India, Stand-up India, Swacch India, Start-up India, Digital India etc, this one too is an attempt to capture eyeballs without much underlying substance. For a government that talks of measuring anything and everything, no outcomes have been fixed for these flagship initiatives. No detailed metrics have been shared with the people of India that would need to be met to show that progress has been made. The reality is that feelings of disenfranchisement among the poor have intensified and threaten to disrupt growth in our most vibrant regions and communities.
In education, that vital sector intimately linked to intellectual leadership of the country and skill needs of the economy, no higher education institutions like universities have been announced. Resource needs of new IITs, IIMs, Aiims, and NIITs have not been adequately addressed. Industry-academia partnerships have not been given positive budgetary signals. In the absence of a close nexus of skilled education with employability, higher education loans announced by the finance minister will turn many unemployed students, who are defaulters.
Effective delivery depends upon effective machinery.
In taxation, the budget comes up short on many counts. No attempt has been made to widen the tax base. Coal cess burden has been increased without linking the proceeds to measures for a cleaner environment. Tax exemptions for the corporates remain untouched. In fact, the largesse given to business houses of over Rs two lakh crores in the last budget has been expanded. This will not only worsen the income inequalities in our country, with attendant social consequences, but also indicates where the sympathies of the government really lie. It is broadly acknowledged that tax reform depends upon tax administration structure. No serious efforts have been made to act upon the critical recommendations of Tax Administration Reforms.
The middle class, the major constituency that reposed its faith in BJP, has been given an especially short shrift. No tax relief for them. Further, while income tax slabs have not been tampered with, indirect taxes on commodities have been imposed — raising prices of several goods and services. The middle class is already facing effects of inflation as the impact of low international oil prices has not been passed on. Asset bubbles, especially in housing, have not been addressed, keeping affordable housing a distant dream for the vast majority of our countrymen.
In short, the budget focuses on hype, does not make a coherent policy statement that would spur investment, business confidence, and growth, and ignores large areas of economic activity like defence production, sector-wise manufacturing, and services near the top of the value chain. The budget should have reiterated the government’s commitment to an inclusive political and economic ecosystem to calm nervous investors, but that opportunity has been squandered. The government has only two Budgets left now to come good on its extravagant promises during electioneering.
One such promise that stands out is the government's position on the Rs 6,00,000 crore of black money it said was stashed outside India and how this government would 'move heaven and earth' to bring it back within its first 100 days in office and how much it would enrich the average Indian. All that remains in this Budget is a sort of Voluntary Disclosure Scheme kind of arrangement, an instrument used from time to time for decades now, with mixed results.
Jaitley’s latest effort does not sizzle; it fizzles.