Mumbai: The Union Budget was “disappointing” as it lacked a vision, though measures like relaxing the fiscal deficit target and simplifying income tax are positives, the PM’s economic advisory council member Ashima Goyal has said.
Goyal, who is a part-time member of the Economic Advisory Council to the Prime Minister (EAC-PM), also said that it was a “surprise” not to have a mention of the word ‘slowdown’ in the nearly three-hour long speech by finance minister Nirmala Sitharaman.
The budget document is a “balancing act” between fiscal stimulus to drive growth and the need to be responsible on spending, she said at the Indira Gandhi Institute for Development Research here over the weekend.
“Overall it (Budget) was disappointing because they didn’t bring out the vision as a first real budget of a new government. It had to give a vision,” the eminent economist said.
India’s GDP growth is expected to slip to a decadal low of 5 per cent this fiscal, pressured by domestic factors like drop in consumption, as well as global issues.
“Surprising thing is that coming at a time when everybody is disturbed about a slowdown, the word slowdown is not used at all in almost three-hour long speech. There was no discussion on how the Budget is going to attack slowdown,” Goyal said.
She further said Sitharaman was in a “catch-22” situation from the word go in the Budget making process, wherein any action would have left someone unhappy.
However, the finance minister has achieved a “balancing act” through her moves, Goyal said.
She elaborated that by adopting the ‘exit clause’ under the Fiscal Responsibility and Budget Management (FRBM) Act, the government gave a stimulus to growth and yet affirmed commitment to rules against fiscal profligacy.
To drive the point further, she said a 0.5 percentage point relaxation in fiscal deficit target offered under the exit clause makes lot of resources available, considering that the overall size of the economy is nearly USD 3 trillion.
Goyal also welcomed the government’s resolve not to adopt policies similar to the response following the 2008 financial crisis.
She said in 2008-09, the fiscal deficit had gone up by 4 percentage points and the interest rates were also taken to record lows to stimulate growth.
There is also an attempt by the government to direct expenditure more towards capital expenditure, which suggests that the quality of the fiscal deficit is better now.
The Budget also has other positives like the ones on taxation, where there is greater focus on trust and simplification, she said, welcoming the debated moves on exemptions.
The government’s moves on frontloading expenditure to early part of the fiscal year will also help, she said.
The measures on helping smaller non-bank lenders will prop up the economy as liquidity is still an issue for lot of players in the system, she noted.
The government has been “opportunistic” on the transparency front, she said, adding that credibility has been added by stating the off-budget borrowings through entities like the Food Corporation of India.
On banks’ reluctance to pass on RBI’s rate cuts, she cited pressure from both the elevated small savings interest rates and also the dependence of a large population on interest income.
“We are not willing as an economy to move to a lower interest rate, lower inflation economy,” she said.
On the resource mobilisation front, she acknowledged that people are getting “cynical” with the privatisation targets after a massive under-performance on this front in FY20, but seemed to suggest that work already undertaken, like in the case of Air India, will reap revenues.
Meanwhile, she also flagged implementation issues on the budgetary targets, suggesting that the revenue increase targets are very high.
Goyal also pitched for a relook at the the subsidy model, highlighting food subsidies to illustrate that the consumption habits have changed.