The general principle of government budgets is to focus on where the money needs to go—with nary a care for where the money went. Ronald Reagan once quipped that the government always needs the money it gets. Equally, governments always find a need for which they don’t have money. For some time, like many regimes, this government has been engaged in an expedition to find money. There are many theories on the where, what, when, how and why of the treasure hunt. On November 6, 2018, India was informed that the finance ministry had asked the Reserve Bank of India for a portion of its reserves. Then, on November 9, Subhash Garg, Secretary Economic Affairs, tweeted a denial. Normally government denials signal confirmation.
The figure doing the rounds is Rs 3,60,000 crore. The Rs 3 lakh plus figure has been a constant since the 2016 demonetisation. It was believed that note cancellation will deliver a windfall—the then advocate general, Mukul Rohatgi, told the Supreme Court that “between Rs 4 and Rs 5 lakh crore” will not return. As it turned out, 99 plus per cent of the cancelled notes returned to RBI. The second hope balloon was a rapid rise in revenues following the introduction of the GST, which is falling short of targets.
The moot question is what does the government want Rs 3.6 lakh crore for? Two narratives are viral. One is about the need for a blitzkrieg of sops after the five-states polls, to be announced in the run-up to the interim budget. The second narrative revolves around the competing crises and compulsions in the economy—simply, filling the hole in the bucket.
What could be on the agenda? For a glimpse of sop expectations, consider these ideas. Given the estrangement of the farmers from the ruling party, the focus is on the rural economy. Loan waivers are done and dusted. The evolving new idea that has caught the imagination of the cadre is the income scheme—first conceived by the Telangana Rashtra Samiti in Telangana.
Launched in May 2018, the Ryuthu Bandhu scheme delivers Rs 4,000 per acre to each farmer who owns land during the kharif and rabi seasons to buy inputs. The idea had featured in the BJP manifesto for Karnataka—income support of Rs 10,000 to 20 lakh dry land small and marginal farmers. The Telangana government has allocated Rs 12,000 crore for the scheme. The math for 30 states would depend on farmer/acre data, but the figure could well be more than the annual food subsidy. The critical aspect here is that this entails a recurring allocation.
The other favourite is to design an electorally efficient income transfer—like the concept of universal basic income for the bottom 75 per cent of the populace which made a cameo appearance in the Economic Survey of 2016-17. Since the costs would be prohibitive (around 4 per cent of GDP), it was also suggested that the government roll back other social programmes.
To paraphrase Milton Friedman, there is nothing as permanent as a government programme and the politicos know it. The alternative is to do a limited UBI or a one-time income transfer. The 10 crore families identified for Ayushman Bharat could well serve as the target group and would cover the farmer families too. The kitty of Rs 3.6 lakh crore could deliver up to Rs 30,000 a year to each family.
So is the moolah for the sop raga? The one caveat to be remembered is that voters rarely recall what was done and parties prefer to promise to draw votes. You could also argue that the war chest will not be needed this year but after the results, when the promises need to be fulfilled.
The intensity of the spat between North Block and Mint Street reflects an emerging systemic financial crisis. On the face of it the economy grew at 8.2 per cent in the first quarter, half-yearly data on direct taxes are said to be up by 16.7 per cent, advance tax collections are up 30 per cent for individuals and 16.7 per cent for corporates, and the finance ministry claims it could surpass the disinvestment target of Rs 80,000 crore. Notwithstanding the assertions by the government, there is a lingering worry that there could be a major mismatch and a gaping hole in the fiscal deficit.
The fears are fuelled by two worrisome factors—the rumble about the rise in unpaid dues of the Centre and states to utilities, power, affordable housing and infra companies, receivables of FCI, and the rise in the food subsidy bill and a possible top up of the Ayushman budget. On the income side, there is the worry about GST collections, and the persistence of loss compensation to states. This leaves scant headroom for the government to intervene in a crisis.
The state of the banking sector— now including the NBFCs—is such that credit delivery is daunted by availability and haunted by the ghost of defaults. If growth is to be sustained, banks need sustenance and support—which translates into recapitalisation and loosening of shackles. Above all there is an emerging crisis. Already hydro, thermal and renewable power producers are at the brink of default—state governments owe power producers over Rs 40,000 crore.
The housing sector is nearly comatose—thanks to the Molotov cocktail of delayed permissions, poor liquidity and ill-designed GST. The buzz in Mumbai is that visiting Cabinet ministers have been informed that the crisis could result in Rs 1 lakh crore of NPAs and lakhs of jobless labourers. Given the spectre, Rs 3,60,000 crore may well be the initial down payment to put out the fire. It may be a good idea for the BJP to dwell on policy failures and solutions before they draft the manifesto for 2019.
shankkar.aiyar@gmail.com