Exactly on this day last year, I had predicted in this newspaper: “The Finance Minister has cut the MGNREGA budget artificially and will be forced to spend much more.” Nirmala Sitharaman had budgeted `60,000 crore for the jobs scheme last year. It turns out that the government spent Rs 86,000 crore, 44 percent more than what was budgeted. MGNREGA is a demand-based right-to-work programme and, given the larger jobless economic growth environment, it was evident that the demand would far exceed what the finance minister had hoped for.
What is worse—recall that in 2014, Prime Minister Narendra Modi had mocked MGNREGA in the Lok Sabha as a monument to the UPA government’s failure. His government has been forced to spend nearly triple the amount for the scheme. It was MGNREGA that saved this nation from potential civic unrest during the Covid lockdown. Modi’s troubling tryst with MGNREGA epitomises the larger budget exercise and its handling of the economy over the last decade. Watch what the Modi government does, not what it says.
The government says that India’s economy is among the world’s fastest growing. The Reserve Bank of India’s latest consumer confidence survey shows that 70 percent of Indian families—those earning less than Rs 50,000 a month—feel the economy has worsened for them, while it is only the top 30 per cent that say the economy has improved.
The government says that India’s economy is the lone shining star in the world. Foreign investment into India has remained stagnant for a decade.
The government says by reducing corporate taxes, it has eased doing business for companies. Private investment as a share of GDP has fallen, which means the private sector is not exactly buoyant by either a reduction in tax rates or by the claim of easier conditions for business.
The government says that incomes for people have grown. Demand for MGNREGA just last year was the highest in a decade (leaving out the Covid years), which shows that people do not have any other means of income other than to slog for bare minimum wages.
The government says with GST, India’s economy has been formalised and tax evasion has been brought down. India’s indirect tax to GDP ratio has remained the same before and after GST at roughly 4 percent, implying tax collection has not really improved post GST.
The government says that welfare schemes for the poor have increased enormously in its tenure. Welfare expenditure has actually come down to 16 percent of total expenditure from 20 percent in 2014.
The government says it is highly nationalistic and puts ‘nation first’. In its tenure, the Modi government has sacrificed territory to the Chinese and reduced defence expenditure from 17 percent of total expenditure in 2014 to 13 percent.
The dichotomy list of what the government says versus what it does is long. Just as everything else in the country—from movies to sports to universities—the budget exercise is also heavily politicised. One can rightfully argue that every budget of any government is first and foremost a political act. But what sets this one apart is the complete dissonance between the narrative and the budget speech to what actually transpires in the numbers and on the ground. Former US President Barack Obama would have called the last 10 budgets ‘lipstick on pigs’.
Fundamentally, any government’s budget is about where it gets money from and what it spends it on. In India, the federal government gets its money from three predominant sources of taxes—corporate taxes, personal income taxes and indirect taxes such as GST that everyone from the poor to the rich pay at the same rate. In its 10 years, the Manmohan Singh government nearly quadrupled its tax collections. The bulk of this increase in taxes came from rich corporates.
The Modi government tripled tax collections in its 10-year tenure, but a bulk of its increase came from regressive indirect taxes that the poor share a greater burden of, while corporates’ share came down. This, in essence, is the taxation philosophy of the Modi government in its tenure. For all the hullaballoo over tax reforms, GST, globally competitive corporate tax rates and so on, the reality is that the direction of taxation in the Modi government’s tenure turned regressive to greater indirect taxes and corporates merely pocketed the reduced taxes without increasing investment.
Alternatively, the Modi government has spent its monies largely on public investment in infrastructure such as roads, airports, ports, power and so on, while cutting back on defence, despite its high-decibel jingoistic nationalism. To be clear, capital expenditure is a good investment for the future as a public good that can benefit society at large. But the problem is that most of this capital expenditure is being undertaken by the government using public money, rather than from the private sector.
The government’s capital expenditure has gone up five times in the last decade, while private investment has remained flat. A foolish demonetisation exercise, followed by a haphazard and hasty transition to GST and the pandemic shock have rendered private sector investment sluggish in the last decade. To make up for this slack, the government has been forced to increase its expenditure for which it collected money largely through regressive taxation of the poor. This, in a nutshell, is the Modi government’s budget track record over the last 10 years.
In her budget speech, when Sitharaman gloated about the number of chess grandmasters having increased to 84, insinuating that somehow Modi and his government deserves credit for it, it symbolised everything about the government’s economic management philosophy—give me credit for the rains, but don’t blame me for the drought.
Chairman, All India Professionals’ Congress
(Views are personal)