The general Budget exercise in India has been viewed with much enthusiasm by all sections of society. This is in contrast with similar such exercises in different parts of the world where it is often viewed as an annual statement of accounts for the government. While India’s Budget is that too, it is also an important policy document considered to reflect the aspirations of society. People look at the Budget with much enthusiasm as it determines the allocation of money to various sectors, numerous social policy programmes and taxation changes.
In many ways, the Budget is a reflection of the development trajectory of India—and it changes and develops as India progresses. A good example of this would be the early Budgets that focussed on allocating capital and central planning. The then belief was in Rostow’s stages of growth and that the state must allocate capital to ensure growth take-off in future. That we did meet those pre-conditions, yet growth did not follow, is a separate story. As is often the case, theories are proven, disproven and re-proven. If the objective in the 1940s was to ensure food security and inflation controls, it shifted to encouraging savings, restraining consumption and increasing taxes in the 1950s. In the 1960s, the priority shifted to boosting domestic production and in the 1970s we started to focus on poverty alleviation and reducing inequality.
The modern economy is an outcome of the shift in policy priorities from the 1980s, when we started looking at taxation reforms and encouraging investment. Several small ones were initiated in the 1980s along with a high fiscal deficit that resulted in a modest increase in growth. However, this was not sustained and we ended up in the balance of payments crisis of 1991. The 1990s show wide-ranging economic reforms in trade policy, liberalisation of FDI policy, reduction in income and corporate taxes—some of which happened between 1998 and 2004. Between 2004 and 2014, the focus was on reducing poverty and employment generation as India went back to redistribution.
Priorities shifted to address immediate challenges that India faced in each decade since Independence. It is against this backdrop that we must look at the previous seven Budgets. The key challenge that India faced in 2014 was of slowing growth and weak macro-fundamentals, along with concerns regarding our ability to sustain a high growth rate. The reforms of the 1990s had lost their steam and India needed reforms to enable it to get back on the high growth path.
It is important to also remember that India’s economy had done considerably well till 2018 and that the post 2018 deceleration was an outcome of the tightening credit creations that were an outcome of the IL&FS collapse. Therefore, to a great extent, the economic conditions did improve even when one considers the two successive droughts in 2014 and 2015 along with the NPA problems in the banking sector. These challenges have since then been adequately addressed as India has managed to contain the contraction to its economy well under 10%, despite one of the most stringent lockdowns in response to Covid. While the post-Covid challenges would be somewhat different, the sense of optimism and positive commentary on India is reassuring with regards to its potential to regain its high growth path.
The key thing, however, that is worth recognising is that the Budgets since 2014 have had a sense of policy continuity that is important from the perspective of attracting investors. The approach since then has focused on two issues. First, reforms that enhance productivity, accelerate growth and create a conducive environment for investments to come in. Second, redistribution and ensuring proper provisioning of public goods.
The latter became important as the government recognised the need to improve the purchasing power of the bottom 50% of the country, essential to create a strong domestic market. Thus, we saw that the government started with broadly outlining its vision in 2014 to overhaul the economic policies. Since then, it adopted an efficient approach to reduce leakages by using the DBT and cash transfers to deliver smart subsidies. The focus was on addressing social issues using campaigns like Beti Bachao, Beti Padhao to improve enrolment rates of girls, or ensuring adequate sanitation facilities under the Swachh Bharat programme. Each of these missions required money and the Centre also undertook several measures to improve tax compliance—whether using carrots or sticks.
The gradual rationalisation of taxes, whether personal income taxes or corporate ones, in the Budget were thus geared towards a modern taxation structure with rates geared towards the global taxation rates. Amongst the key social reforms, two of them stand out as significant—first as the financial inclusion program under the Jan Dhan Yojana while the second was the MUDRA Yojana. Both of them ensured that the poor and vulnerable could access bank accounts along with sophisticated formal sector credit for the first time in their lives.
But, the reforms were not just towards the bottom of the pyramid, as the government undertook several productivity enhancing reforms in the form of the GST, the Insolvency and Bankruptcy Code and the mergers of banks—each of these will yield rich dividends over the coming years in the form of productivity gains for the economy.
It is interesting that the very idea of some of these reforms can be traced back to Budgets in the early 2000s and thus, every Budget and a big-bang idea comes with a rich legacy of debate. It is thus important to remember that Budgets represent a continuity of ideas, policies and policy priorities. As India prospers, some of these will change but the central theme of using them as a vehicle for social transformation and public welfare will be constant.
Karan Bhasin (karanbhasin95@gmail.com)
Somya Luthra New Delhi-based legal scholar
New Delhi-based economist and policy researcher