The Union finance minister will be presenting her maiden Budget on Friday. There are a lot of expectations around the first Budget of the new government.
The economy has been slowing down and its impact has just started to hurt the people of the country across all regions. The eight core sectors are also declining and their growth was just 5.1% in May. There has been a decline in manufacturing as well. Auto sales continue to move in reverse gear, with a big slump in both the commercial vehicle segment and passenger vehicle segment.
The delayed monsoon and severe drought have thrown up challenges for agriculture and other sectors. There is a serious weakness in consumer demand. The government tax revenue is going to be way below expectations, also resulting in higher fiscal deficit. Further, GST collections have dipped below the Rs 1 lakh crore mark, the first time in the current fiscal.
The exits of Urjit Patel as governor of RBI and Viral Acharya as its deputy governor have also presented challenges to the stability of the economy, as they were champions in upholding the independence of the central bank. The resignation of Arvind Subramanian as chief economic advisor has also shown there is a collapse in professionalism within the government. Will the finance minister address credibility questions?
This period is crucial for many reasons. India’s GDP has dipped to 5.8%, a 17-quarter low. The bad loan epidemic has spread to NBFCs. Jobless growth has reportedly hit a 45-year high. The decision of US President Donald Trump to end concessions for Indian exports under the Generalised System of Preferences (GSP) will impact exports. The minister will have to take steps to boost exports and also incentivise it by creating regional zones for exports in selected sectors.
According to RBI, 2018-19 saw 6,801 cases of bank fraud resulting in losses of Rs 71,500 crore. This demonstrates that banks are failing. The interests on loans are also not coming down despite the repo rate cuts by RBI to the extent of 75 basis points. Even the credibility of GDP calculation is under threat. Subramanian raised this question and a NSSO study has found holes in GDP computation. Our data has been continuously questioned by economists and experts. P C Mahalanobis, founder of the Indian Statistical Institute, has said, “Statistics must have a clearly defined purpose, one aspect of which is scientific advancement and the other human welfare and national development.” The vision of the founding father is now blurred and there is a threat to the credibility of statistics in India today.
Infrastructure spending will bring down the cost of doing business and spur more investments. But there has been a collapse of many NBFCs. This and the downfall of infrastructure funders like IL&FS is because of the neglect of the finance department and is a serious threat to the infrastructure sector.
What about black money? The money spent on the 2019 Lok Sabha polls is to the tune of Rs 60,000 crore of which 45% is estimated to have been spent by the BJP. Black money had a free dance during the elections. The ruling party will have to do a lot of explaining. Reforms in election funding and expenditure are the need of the hour. Despite many reports submitted by SIT, the failure of the government to act upon them raises serious questions over the fight against black money.
The fear of corruption in public governance has disappeared because of politicisation of institutions as CVC and CBI, and the laxity of Lokpal and Lokayukta. Tax reforms during NDA rule have been counterproductive. The finance minister should revisit GST and pursue real progressive reforms in taxation. The economy is also strained because of the expectations of the Centre to generate 13.5% increase in Gross Tax Revenue (according to the Interim Budget).
The new government now has formed two Cabinet Panels: one to spur economic growth and the other to create jobs. Will India’s growth continue to remain concentrated in mega cities or will there be a shift to smaller towns? Whether the finance minister bites the bullet of reforms in labour laws and land laws, simplifies GST and also takes recourse to a Direct Tax Code with a view to eradicate graft remains to be seen.
The NITI Aayog has failed to play its role in reforming India’s fiscal federalism. The abolition of the Planning Commission was a big blunder. The Centre should take a relook. Governance in finance is always a casualty. The report of the Bimal Jalan-led panel on expenditure management was pronounced in the Budget of 2014-15, but it is yet to be made public.
The PM’s target of a $5 trillion economy by 2024 is a mirage. He asserts it is achievable—it means that the $2.8 trillion economy will have to double in five years, which means the present trend of 5.8-6% GDP growth will have to rise to 10-11% by 2024.
Whatever public investment is made will get wasted unless there is rapid transformation with reforms in the judiciary. The present rate of spending in the judiciary will not result in such transformation. The spend on education, now 2.7%, will have to go up to 6%. The immediate need is to enforce healthcare as a basic right. The minimal provision in the Budget of 1-2% cannot prevent incidents like the unfortunate deaths of over 150 children in Bihar.
Unless the finance minister comes up with drastic reforms with emphasis on social justice and security to ensure a higher growth trajectory, the PM’s target will only be a pipe dream.
Veerappa Moily
Former Chief Minister of Karnataka and Former Chairman, Parliamentary Standing Committee on Finance