You would think there is no crisis in the economy. Newton’s first law says that a body remains in a constant state unless acted upon by an external force. The consensus opinion in the run-up to the Budget was that the spectre of poor consumption and demand, with implications for public finances and private livelihoods, calls for urgent and long-term intervention to revive the animal spirits that foster growth. After over 16,000 words that occupied over 160 minutes of national attention, Budget 2020 has left the economy wondering and those expecting change stranded between hope and despair.
The construct of the Budget speech, beginning with the focal points for attention, flattered and flailed. The opening pitch sought the attention of rural Indians with repeated mention of farmers and agriculture. The promise was waylaid as what followed was more of what has been said before.
There is no dearth of themes, and evangelism on what ought to be. The Budget says, “All this and more can be achieved through working with and in cooperation with the States”, and the need for cooperation from states occurs in nearly a dozen different places and contexts—from market access for horticulture to healthcare to new smart cities to smart metering to promotion of tourism. Much of what could change depended not on allocations or action by the Central government but rests on the poor capacity of the states to deliver. And the track record of the states is visible within the Budget speech.
The state of agriculture, and income levels in the rural economy, is critical to any plan to revive and kick-start the economy. A large part of the articulation of the vision for the future harked about what was ‘already’ proposed—the phrase ‘already’ occurs in 10 different and critical places. The model laws that could change the landscape of farming were ‘already’ issued by the Centre. The Model Agricultural Land Leasing Act in 2016, the Model Agri Produce and Livestock Marketing Act in 2017, and the Model Agri Produce and Livestock Contract Act in 2018. There was however no explanation why there has been no movement nor was there a time-bound action-plan beyond a nudge.
Micro, Small and Medium Enterprises are at the frontier of the slowdown. The Budget acknowledges the critical role of MSMEs in the economy. ‘MSMEs are vital to keep the wheels of economy moving. They also create jobs, innovate and are risk-takers’. The Economic Survey showed how credit to MSMEs virtually dried up in the year. What the Budget ‘proposes’ for the alleviation of their misery is a cloudy cocktail of acronym-infested ideas concocted by a risk-averse babudom. The proposals, such as subordinate debt and credit guarantee mechanisms, are riveted between ifs and buts.
The Keynesian theory requires the government to spend to boost investment—the private sector laden with doubts and debt will only invest when the coast is clear and return on investment positive. And the answer lies in boosting investment in infrastructure. Yes, it is true that Prime Minister Narendra Modi announced a plan to spend Rs 100 lakh crore on infrastructure in the next five years. This translates to
Rs 20 lakh crore a year. Yes the government has declared a pipeline of projects but it would have been more credible if a pathway for funding and execution had found place in the Budget.
The arithmetic of the Budget reflects the triumph of hope over history. In 2020-21 the government will spend Rs 30.42 lakh crore or Rs 8,334 crore per day or Rs 347 crore per hour. To fund the spend, the government will raise Rs 2.1 lakh crore in asset sales and estimates revenues of Rs 20.2 lakh crore—as against Rs 18.5 lakh crore in 2019-20 based on an estimation of between 6-6.5% off the back of a 10% nominal GDP growth. The experience of 2019-20 hasn’t quite dented mathematical hubris! Be that as it may, the government will borrow Rs 7.96 lakh crore, that is Rs 2,181 crore a day or Rs 90 crore an hour and spend Rs 30.42 lakh crore.
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On Saturday, global rating agency Moody’s said, “India’s 2020/21 Budget highlights the challenges to fiscal consolidation from slower real and nominal growth, which may continue for longer than the government forecasts. This risk is reflected in Moody’s negative outlook on India’s rating.” It also said India’s general government debt is already significantly higher than the average for Baa-rated sovereigns—a product of persistent fiscal deficits. Clearly, the government’s fiscal health demands both rationalising of expenditure and monetisation of assets.
The Budget falls short on articulating the imperative and enunciating the steps it plans to take. The listing of Life Insurance Corporation (mooted by this column on 1 Sep 2019) is indeed a courageous step and the disinvestment of BPCL could well yield a tidy sum. These are good but not enough given the magnitude of deficit and debt. The unstated and unanswered question continues to be about the role of government, its continuation as the largest industrial house.
Why not get the government out of business and host PSEs in an Indian Temasek (The Third Eye, 24 Jan 2016)? The idea of monetising idle land and assets that pops up regularly in inter-ministerial notes failed to make an appearance in the Budget. More critically, there is no mention of rationalisation of expenditure—this was the opportune moment for the government to dust and deploy the Expenditure Management Report. Sadly, and after much was said and done, the Budget left a lot to be desired. The longest Budget speech in the history of Independent India invoked the concept of aspiration on 14 occasions but flails to trigger any confidence about what the future will hold.