As Nirmala Sitharaman presented her first Union Budget on Friday, one wondered whether the Narendra Modi government – in the first year of its second term – used this opportunity to signal any bold (or much-needed) measures in actualising its own vision for a ‘New India’.
With scattered bits and pieces on offer in terms of outlining fiscal priorities and making ad-hoc announcements, ranging from starting a start-up TV channel to a space programme, the Budget comes across as a major disappointment, failing to address some critical concerns for the economy.
As a general positive, a clear signal one gets from Sitaraman’s Budget speech is that the Modi government remains keen on restoring the average citizen’s faith in the government to ease basic requirements (paying taxes, setting up a business etc.), with a hope of using this to crowd-in higher private investment opportunities to boost growth.
A reduction of the corporate tax limit to 25% for companies with an annual turnover of less than Rs 400 crore will definitely enhance profit maximisation targets for new or low-scale operating firms.
A number of the stated measures will allow private (and some public) enterprises to increase leverage and park large scale investments in certain sectoral areas:
- Easing the process for income tax filing with the “interchangeable” use of PAN and Aadhaar,
- An easier framework for regulatory requirements for deepening investments in the corporate bond market,
- No tax scrutiny for valuation or e-verification of startups,
- An ease in local sourcing norms for single-retail brand operations, and
- A comprehensive push to ease infra-sector related duties and constructional capacity (particularly in railways and highways).
Exemptions provided on income tax on home loans (for houses costing below Rs 45 lakh) is aligned with the government’s push for affordable housing. It remains to be seen how commercial banks will go about determining their home loan pricing mechanism (in coordination with the Reserve Bank of India’s norms and oversight) while supporting the government’s plan.
Also, a dodgy push for increasing the government’s foreign borrowing capacity or its external debt management – through investments in foreign currencies or portfolio trades – reflect the government’s quest for easy money. This is likely to add significant stress on the already volatile position of the Indian rupee as well as the current account deficit itself (affected by falling exports and rising imports). These aspects seem to have been compromised to appeal to a group of corporate traders which significantly benefits from the short-term mobility of capital flows, within and across borders.
When macro performance indicators are doing relatively well, a hands-off approach from the government allows it to simply act as a coordination device for drawing in investments, and may perhaps help for a short-period of time. This would have made the current Budget seem more reasonable. However, given the conditions of India’s current social and economic landscape, there was a case here – and an opportunity too – for a much more targeted intervention, especially in the agricultural sector. The Budget has offered very little insight in this regard.
Any hope to simply increase, or depend on, scattered sources of private investment, without targeting specific areas in which investments are needed with support of the government’s visible hand – say within sectors like telecom or the MSME investment base – will hardly change the economic status quo. An ease in foreign direct investments limits for aviation, the media and animation will be conditional on other reforms to be made in areas such as labour laws, a digital economic interface and improving distributive linkages for firms.
The government’s Budget proposal further provides a one-time credit enhancement (Rs 70,000 crore) to public sector banks for six months to purchase high-pooled assets of sound non-banking financial companies (NBFCs) will require a higher degree of monitoring, as while this may ease the liquidity burden on some NBFCs, the underlying concern of non-performing assets and debt-driven lending behaviour (from PSUs to NBFCs) may remain unchecked. How the government and RBI will ensure financial discipline – in terms of both lending and borrowing behaviour – remains key for the months ahead.
More importantly, coordinated reforms via fiscal support for five critical areas – W.A.T.E.R (Women, Agriculture, Textiles, Exports and Renewables) – stand to transform India’s economic and social performance in the years ahead. But apart from some fleeting references in the finance minister’s speech, none of these areas featured in the government’s fiscal priorities or outlays for year.
At the same time, Sitharaman had a tremendous opportunity with this Budget to further attach significant priority to two of the Modi government’s most underemphasised priorities thus far – education and basic healthcare access. These too got limited attention.
A government that harps on about transformative visions but fails to highlight the importance of education or basic healthcare access (beyond financing insurance-based schemes) in its reform agenda will continue to exacerbate existing social and economic problems. The rising rates of unemployment for rural and urban areas require a considerable push for increasing ‘employability’, and educational reforms are key in this context.
Similarly, many measures announced earlier this year failed to find any mention or explanation – in terms of eligibility criterion and disbursement processes. For example, in the interim Budget presented earlier this year by Piyush Goyal, two schemes got widespread attention – the Prime Minister Kisan Samman Nidhi Yojana (transferring marginal sums of money to targeted farmers with small land acreage) and the Prime Minister Shram Yogi Mandhan (paying Rs 3,000 per month as pension to 42 crore people employed in the unorganised sector and those earning less than Rs 15,000 per month).
In aggregate measures, this Budget comes across as a major disappointment for lower-middle income groups and citizens (especially farmers) who were the main target of attention during the interim Budget presented earlier this year. The election rhetoric fuelled the government’s fiscal imagination at that point.
Yet, such is the crafted mastery of the Modi government’s ability to control its rhetoric of ‘developing India’ that its projected picture of reforming the Indian economy seems to be kept feeding as a continuous loop of trailers about what’s to come ahead. But when the time comes, nothing is actualised.
Governments are increasingly becoming television networks for self-promotion, projecting possibilities without transitioning them to actualities (or making a policy roadmap in any form). This trend is likely to continue in the times to come.
Deepanshu Mohan is associate professor and director, Centre for New Economics Studies at O.P. Jindal University. He is a visiting professor to Department of Economics, Carleton University, Canada.