There were major expectations of a big growth stimulus package from Nirmala Sitharaman's maiden Budget in the backdrop of a serious slowdown in the Indian economy. That was however not to be, except for the Rs 70,000-crore capital infusion announced for State-run banks.
But it's worth recalling that not even all of this money will go towards a credit boost that can give a leg-up to the economy. According to former SBI chairman Arundhati Bhattacharya, around Rs 30,000 crore of this amount can be counted as growth capital for PSBs.
If growth is the yardstick, on a scale of 10, this Budget would have scored six.
That said, this Budget was certainly not a non-event, as it carried several interesting proposals that are incremental in nature, consistent with Prime Minister Narendra Modi's government's reform agenda. The broader character of the Budget was that of a socialist one, but with a reformist touch. Sitharaman devoted significant time to explaining the schemes for the poor. These included a pension scheme for three crore retail traders, shopkeepers with an annual turnover of less than Rs 1.5 crore, timebound programmes to make available electricity, drinking water and toilets to rural households, a push on affordable housing, the expansion of social sector schemes to traders and farmers and tax sops to small companies.
With companies that have an annual turnover of upto Rs 400 crore — as opposed to Rs 250 crore, now being listed under the lower 25 percent tax bracket, around 99.3 percent of companies are now under the smaller bracket. For individual tax payers too, there was good news with Sitharaman proposing a tax holiday for developers of affordable housing and additional deduction of up to Rs 1.5 lakh for interest on home loans borrowed up to 31 March, 2020. That takes the total deduction to upto Rs 3.5 lakh.
Similarly, there was a lot of stress on the infrastructure development under various schemes in Sitharaman's first Budget. These include investment in railways, housing and farm infrastructure. The government wants to construct 1.95 crore houses under the Pradhan Mantri Awas Yojana (PMAY). Also, it wants to invest Rs 80,250 crore for the upgradation of roads under the Pradhan Mantri Gram Sadak Yojana. Another Rs 50 lakh investment is estimated for railways infrastructure from 2018 to 2030. The thrust on infrastructure development, provided this is supported by adequate funds, is a positive for the economy.
On two fronts, the Budget gave glimpses of an intent to reform — labour laws and PSUs privatisation. The announcement to roll out multiple labour laws into four codes was interesting, although the exact nature of the action plan needs to be clarified. This will not be easy as there are major challenges to implement this, primarily from the trade unions as we have seen in the past. To be sure, the government had attempted labour law reforms in the past too, but couldn't progress. Also, the state governments need to be brought in to streamline labour laws. One needs to wait and watch how the government plans to tackle labour unions.
More importantly, Sitharaman stated the willingness of the government to cut government stakes in PSU undertakings and examine the possibility of bringing down the government's stake below even 51 percent on a case-by-case basis. The government is willing to modify the minimum 51 percent stake in PSUs policy to a minimum 51 percent holding through government and government-controlled PSUs. This gives hopes of more PSU participation in divestment and the government exiting its shareholdings in several PSUs. To be sure, similar promises have been made in the past, but the promise has largely remained on paper.
The question is: Will it be different this time? The proposal to give more power to the RBI to regulate NBFCs and HFCs is interesting and important in the backdrop of the crisis situation in the NBFC sector. On the fiscal deficit front, the government has set a target of 3.3 percent for the current fiscal as against 3.4 percent earlier. It is doubtful whether this target can be achieved given the expenditure plans and not-so-encouraging revenue scenario. Sitharaman has set a target of Rs one lakh crore disinvestment this year.
The burden of social sector spending is likely to fall on the consumer and the proposed increase in the special additional excise duty and road and infrastructure cess — by a rupee each per litre of petrol and diesel — points to this. This is unlikely to go down well with many people. Petrol and diesel prices are set to rise and will certainly cause consumer unhappiness. Also, the tax on the rich is set to go up. Those earning Rs five crore or more per annum will now be in the 42 percent tax bracket.
Sitharaman's Budget has come in the backdrop of a severe demand slump seen over the past several months. Two-wheeler, car and tractor sales have been plummeting, FMCG companies have been reporting declining sales. There has been a notable decline in the number of new investments and rise in the chunk of stalled projects. What this effectively tells us is that unless demand revives on the ground, no amount of interest rate cuts can help the economy. There weren't enough in the Budget to boost the economy in the near term. That promptly passes the onus to the Central bank and MPC to offer a monetary stimulus.
Updated Date: Jul 05, 2019 22:27:12 IST