What should a budget be like in the times of demonetisation? Never like the one presented by
Union Finance Minister Arun Jaitley in the Parliament Wednesday. Instead of providing fiscal stimulus to the economy, he presented a contradictory budget.
He gave the impression that by the time the Union Budget of 2017-18 would become operational, demonetisation would be well behind us. But will re-monetisation resurrect the more than 100 people who died either standing in the queue or by committing suicide in their haplessness? Will it automatically reopen the lakhs of informal sector units that had to be shuttered for want of cash? Will it be able to restore the shattered investment climate? It is a simplistic view to assume that it would be business as usual once re-monetisation gets underway. The budget as well as the Economic Survey has adopted an ostrich-like attitude towards the grave economic crisis the
country faces.
Finance Minister Arun Jaitley chose to camouflage the serious downturn by sticking to the 7.1 per cent growth estimate of the CSO for the period April–October. Note the downside of the expected growth rate of 6.5 to 7.5 per cent for the next year. If the adverse impact of demonetisation is factored in, the 2016-17 growth rate would be closer to 6 per cent. The advance estimate of growth fixed capital formation ratio for 16-17 is 29.1 per cent, down from 34.3 per cent in 2011-12. Dr D Narayana, the Director of GIFT, estimates that if the investment decline in the last two quarters of the current year is factored in, the gross fixed capital formation rate would be even lower, at 23.3 per cent.
The advance estimate for growth in bank credit at the end of December 2016 is 4.7 per cent, down from 17.8 per cent in 2012-13. The slide of the export ratio to GDP from 24.5 per cent in 2011-12 has continued, and is estimated to be only 18.8 per cent this year. The capacity utilisation according to Care Rating Agency is only 70–72 per cent. This is a grim picture. The macro-economic function of any budget in the circumstances would be to expand expenditure and provide stimulus to the aggregate demand. But Jaitely has chosen the opposite route.
The gross expenditure as per the revised estimate for 2016-17 is Rs 20.1 lakh crore. In the current budget it was increased to 21.5 lakh crore. Therefore, the actual increase is just 6.5 per cent. Even this presumes that tax revenue would grow by 12.6 per cent and fire sale of assets would bring in Rs 75,000 crore. Total size of the budget has come down from 13.4 per cent of the GDP last year from 2016-17 (revised estimate) to 12.7 per cent of GDP in 2017-18. The finance minister boasted of restricting fiscal deficit to 3.2 per cent. The FRBM committee recommended for deviations up to 3.5 per cent of the GDP during circumstances of ‘far-reaching structural reforms in the economy with unanticipated fiscal implications’. But the Finance Minister has chosen to be more loyal than the king to the neoliberal stipulations. The result: The Budget doesn’t have the necessary resources to back his intentions.
He claimed a record allocation of Rs 48,000 crore for MGNREGS. In the revised estimate for 2016-17, MGNREGS allocation was Rs 47,499 crore. So the actual increase is only Rs 501 crore, sufficient to provide 45 days of employment and not 100 days. The revised estimate for 2016-17 allocated Rs 19,000 crore under the Pradhan Mantri Gram Sadak Yojana. The same amount is allocated for 2017-18. Similarly other major social sector projects like Sarva Shiksha Abhiyan, Mid-Day Meal Scheme, National Drinking Water Scheme, National Old Age Pension Scheme have got meagre increases.
The Budget announced doubling of income of farmers. But the agriculture ministry received an additional allocation of only Rs 3,000 crore, For rural development, the allocation for Pradhan Mantri Fasal Bima Yojana has been reduced from Rs 13,420 to Rs 9,000 crore. Resource mobilisation has been another failure. From revised estimate of 9.4 per cent of GDP the total revenue receipts has come down to 9 per cent. Despite tall claims about hunting tax evaders, the total tax revenues raised but not realised currently is over Rs 7 lakh crore. The finance minister has become a prisoner of the popular narrative of demonetisation invented by Prime Minister Modi. The result is a lot
of impressive rhetoric, with little to show in the outlays.
T M Thomas Isaac
Minister of Finance, Kerala