Rituals without efficacy are blasé formalities of inevitable intentions. Take the yearly Budget. Apart from being a photo-op for the finance minister and a talking shop for businesspersons and their collaborators, it is hardly a pick-me-up for the populace. It is a television circus sponsored with big bucks where corporate honchos and market economists hold forth in five-star hotels to debate and discuss the big takeaways and small giveaways of the long-winded Budget speech. For the high priests of vacuous vocabulary, the deficit digit is more fascinating than rising youth unemployment.
Hence, the second Budget presented by India’s first full-time female finance minister, Nirmala Sitharaman, turned out to be a complex exercise in wordplay. She promised that the Budget in spirit honours wealth creators and would end imagined tax terrorism. But by the end of her 150-minute speech—the longest ever by any finance minister since Independence—it proved to be just another statement of noble intent. The Sensex, however, slid during her speech. Corporate captains, who normally cheer every finance minister, were circumspect in their endorsement.
They were more concerned about FDI, GST, fiscal deficit and easy access to bank credit than reviving the countrywide plummeting demand and lack of new employment opportunities. The Budget, while addressing almost every section and sector of the economy, failed to provide a new innovative direction for policymaking. By allocating a whopping Rs 5 lakh crore for infrastructure development, the government expects to generate jobs and create excess demand. Sitharaman also claimed that North Block’s guardian angel has blessed Aspirational India, comprehensive economic development and the inspiration for a caring society.
Yet, the praxis of her sacrament brought no smiles to the faces of the masses. They had expected a decisive and aggressive BJP government to make fundamental changes in budgeting architecture. Sitharaman announced various new schemes and projects but there was no inherent idea that qualified as new Modinomics or ModiMantra Rising. The Budget included many of the PM’s views but there was no tangible sign of turning his dream of making India a $5 trillion economy into reality. The main boxes ticked are:
Agriculture: Modi has been making repeated promises to double farmer’s income by 2022. However, Budget 2020 showed no revolutionary signs of propelling such an ascent in the next two years. While every second Indian depends on agricultural livelihood, the sector contributes a mere 15% of the GDP. In fact, due to adverse trading terms, the farmer’s real income has declined over the past decade. Real agriculture growth is below 3%. Per capita farmer income is already 30% less than the national average. Its growth rate has slowed thanks to the impact of usury and higher input costs.
Sitharaman mentioned air-conditioned rail wagons and aircraft to ferry agro products from villages to urban markets but these will not help middle or marginal farmers. While the rest of the country uses technology to make more money, the FM doesn’t offer a roadmap for encouraging farmers to adopt new techniques and modern equipment. Unlike for corporates, there is no incentive scheme in place to push the farming community to produce more at minimum cost. The placebos offered by successive finance ministers and parties were farm loans and direct cash transfers that ensured votes but not prosperity.
The Middle Class: The BJP has been the darling of the middle classes, which is ironically the most heavily taxed—directly and indirectly. Sitharaman has rejigged the direct tax regime by reducing personal income tax on annual incomes up to Rs15 lakh. The middle class forms the largest segment of Aspirational India.
Its dreams include a comfortable home, car, affordable education for children, credible and economical health facilities, and a yearly family holiday. But it is the one burdened with high taxes. While corporates get tax relief on all capital expenditure, a house buyer gets relief only up to Rs 2 lakh as the annual interest on a home loan. At current property prices, this would mean a house priced at Rs 25 lakh, which is hardly available anywhere in the country. Moreover, anyone who wants to sell his property and invest in a commercial venture ends up paying huge capital gains tax, thus making it impossible for him to start a new business.
The biggest concern for the middle class is the plummeting interests rates on small savings. Both the government and the banks have been drastically reducing interest on short and long term fixed deposits, forcing people to invest their hard earned savings in markets. Though the budget promises ease of living, in reality, a tension-free life for the middle class is a Sisyphean myth. Since 1991 when the reform regime was born, the middle class has been the main source filling government coffers and raising demand generation while corporates remain the sole beneficiaries.
Economic Inequality: The Budget is expected to ensure equitable distribution of wealth and income generated through fiscal initiatives. Unfortunately, Union Budgets have only widened the gap between the rich and the poor. For the past 28 years, they have focused on supply concerns by extending massive tax concessions to the corporate sector and creating a lucrative stock exchange mechanism to serve as the major source of tax-free income to promoters. Easy access to bank credit at relatively lower interests was provided to create excess supply of goods and services without setting a corresponding system for generating sustainable demand.
The phenomenal growth of the services sector led to Brobdingnagian income inequalities. According to a new study, 77% of the wealth generated in India during 2017-18 went to the top 1%. The number of Indian billionaires rose from nine in 2000 to 120 last year whose wealth equals the total Budget outlay. Foreign educated economic advisors embedded in the system never bothered to tackle the widening void between people who have everything and those who hardly have anything.
Government Size: Narendra Modi was the first prime minister who understood the pitfalls of a big government. He promised Maximum Governance and Minimum Government. But none of the budgets have used pruning shears. Inversely, more top-level new posts, panels and commissions were created in the last six years than ever before. Ministries haven’t been rationalised. In fact, many mantris with multiple portfolios keep a hefty number of personal staff and enjoy perks from each ministry like luxuriously appointed offices. At the macro level, the Centre bestows about 10% of its expenditure budget on salaries and benefits. Moreover, huge amounts are being spent on constructing new offices to accommodate the top- heavy bureaucracy. Even the pervasive use of technology hasn’t shrunk the multiple levels of decision making.
Put it all together to see that Budget 2020 is hardly an instrument of change. It is a volume inspired by optimistic Wiki-arithmetic, and not a manual for structural and institutional corrections in India’s skewed growth story. By the end of every annual budget, India adds ten new billionaires but millions go hungry without a roof over their heads. The country needs a Budget not for the markets but for the masses.