I read many of them; also, my team carefully collates them for me. Value every bit. Thanks. Please keep them coming,’ Sitharaman has been swamped with suggestions, from every nook and corner.
This isn’t surprising. This is the first time any finance minister has looked beyond the usual suspects — economists, corporate honchos and various lobby groups — to the aam aadmi, for budget-related suggestions. Even if only a minuscule fraction of a billion-plus Indians responds, that’s enough to keep the new minister on her toes.
She would do well to follow Laertes’ advice in William Shakespeare’s Hamlet: ‘Give every man thine ear, but few thy voice; Take each man’s censure, but reserve thy judgment.’ In simple English, ‘Listen to all opinion, but answer only the reasonable. Acknowledge criticism, but keep your judgment on hold, be patient and wait for the opportune moment.’ The truth is, thanks to years of India’s misguided tryst with socialism, most Indians still see GoI as a ‘mai-baap sarkar’, to be supplicated for favours. So, most suggestions are for some form of government largesse — lower taxes, higher exemptions, more hand-outs and so on. Sitharaman will have to pick and choose, even as she keeps one eye on the fiscal deficit.
Her problem is not so much heightened expectations, raised by her open invitation to the public, but BJP’s election manifesto making a number of extravagant (short-sighted?) promises. Consider some: -Invest Rs 25 lakh crore in the agricultural sector. -Give interest-free Kisan Credit Card (KCC) loans up to Rs 1 lakh for 1-5 years. -Implement a pension scheme for small and marginal farmers. -Create a ‘Seed Startup Fund’ of Rs 20,000 crore. -Invest Rs 100 lakh crore in the infrastructure sector by 2024.
None of these is going to be easy to deliver. Not in a scenario where resources are stretched and scope for additional revenue is limited, even assuming disinvestment is speeded up and GoI hits pay dirt with the Jalan Committee recommendations on transfer from RBI’s reserves. And, more importantly, a major part of government expenses is pre-committed.
Sure, the shift to goods and services tax (GST) will result in higher tax revenues, both indirect and direct. But that day is not here yet. Many sectors — petroleum, alcohol, electricity — are still out of the GST net. Evasion continues, glitches remain. Moreover, GST is now within the purview of the GST Council, a federal body comprising state finance ministers and the Union FM.
That leaves GoI with leeway only on customs, excise duty on a few items and income tax, personal and corporate, among major tax heads. For the moment, therefore, Sitharaman has no alternative but to rationalise/reorient expenditure (read: spend on areas where she can get maximum bang for the buck). Apart from spending on infrastructure, the best bang for the buck will come from recapitalising public sector banks so that they take up the slack due to non-banking financial companies (NBFCs) virtually withdrawing from the scene, and start lending once again.
Sure, recap bonds will increase our debt-to-GDP ratio, but they will have no immediate impact on the fiscal deficit (though they will raise the future fiscal deficit due to interest payments on recap bonds).
The Bigger Picture
Fiscal economists may not be happy. But budgets are about the big picture. Successive governments have used the budget speech to announce wide-ranging policy intentions.
And as the involvement of the PMO has grown, budgets have become less about GoI’s income and expenses, and more about larger policy intentions. The president’s address to the joint sitting of both Houses of Parliament has already given us a hint of what to expect — a new industrial policy, possibly a national retail policy; plans to make India a $5-trillion economy by 2024; promises of faster structural reform, etc.
None of this will change things overnight. But the budget is not a silver bullet that can rid the country of all its economic ills. Sure, there is no great sanctity to the 3.4% fiscal deficit number in February’s interim budget, and some flexibility could help.
But it is important not to get despondent about the slowing economy and throw fiscal prudence to the winds. Earlier this month, Andy Mukerjee, referring to former Chief Economic Advisor Arvind Subramanian’s claim that average GDP growth was 2.5 percentage points lower between 2011-12 and 2016-17, asked dismissively in Bloomberg , ‘Who will invest in a labour-surplus nation at near-recessionary growth rates?’ If only he’d looked at the data. In the four weeks to June 25, 2019, foreign institutional investors have already invested close to Rs 22,000 crore.
Provided Sitharaman brings to budget-making the skills she learned as part of the ‘fashionably impecunious’ Jawaharlal Nehru University (JNU) student fraternity, and cuts her coat according to her cloth, we are in safe hands.