Events & Issues

New Delhi, 10 July 2019

Key Factors & Budget

NEGLECTED, LACKS DIRECTION

By Dhurjati Mukherjee

Finance Minister Nirmala Sitharaman had a challenging task as the Budget was presented in a situation of faltering GDP growth, consumption slowdown, jobless growth, a truant monsoon that has already hit kharif sowing, global trade tensions and a freeze in the credit market that set alarm bells ringing across the financial system. Though she painted an optimistic picture saying that within five years, the economy reached $2.7 trillion, $3 trillion by the end of this fiscal and by next few years shall be $5 trillion, she ignored core issues and finding innovative solutions. 

The Budget’s thrust was on infrastructure development such as highways, waterways, regional airports and power connectivity -- One Nation, One Grid -- that has ensured power availability to States at affordable rates. Sitharaman proposed to make available a blueprint this year for developing gas grids, water grids, i-ways, and regional airports. The target investment of Rs 100 trillion over a 5-year period looks encouraging, but only time will tell about actual expenditure incurred and its judicious use. Besides, envisaged investment in infrastructure has not specifically mentioned the role of private sector, which many industrialists expect to be announced in due course.

Similarly, the Railways got a budgetary allocation of Rs 65,837 crore and the highest ever outlay for capital expenditure amounting to Rs 1.60 lakh crore. Significantly, Rs 7255 crore have been allocated for construction of new lines and Rs 2200 crore for gauge conversion but it is here that private partnerships should help modernise stations. 

The funding of expenditure has been a core question. Setting up a Credit Guarantee Enhancement Corporation, action plan to deepen the long-term bond market and permitting foreign investors to sell select debt securities to a domestic investor are some of the measures proposed to fund the $300 billion investment required for infrastructure. However, the hike imposed on fuel – which works out to Rs 250 per litre for petrol and Rs 2.30 per litre for diesel will have a cascading effect and increase all-round costs. This could have been avoided or increased by a nominal sum.

At a time when creation of jobs has become imperative, which the government has stated, the decision to modify the present policy of retaining 51 per cent stake in public sector units doesn’t seem justified. Disinvestment target of Rs 1.08 lakh crore for the remaining nine months of the current fiscal seem quite ambitious. It would have been better if the government tried to gear up PSUs performance through technology induction, modernisation and diversification, instead of selling these to private owners, who aren’t really known for honesty and integrity as well technical expertise.

The Budget has talked of ‘new age skills’ and these could have been used in the PSUs to making them profitable. The need of the hour is to bring more investment in economy and the government shouldn’t expect the private sector to do so. Moreover, unemployment situation is at a record high, and it remains to be seen how with this strategy it will generate employment.

A noteworthy step taken by Sitharaman has been to increase the surcharge on high net worth individuals having taxable income above Rs 2 crore to Rs 5 crore and from Rs 5 crore and more by around 3 per cent and 7 per cent respectively. As per the Finance Bill, 25 per cent surcharge on income above Rs 2 crore and 37 per cent for those earning above Rs 5 crore will mean an effective rate of 39 per cent and 42.744 per cent.

On the rural front, a new scheme, Pradhan Mantri Matsya Sampada Yojana, was announced to establish a robust fisheries management network and a boost to agriculture-based traditional business. However, it is surprising that while the government has publicised the launch of Jal Shakti Abhiyan across 255 districts in a big way and promised developing water grid on lines of power grids, there seems to be drop in funding for the Jal Shakti Ministry!

The concept of zero budget farming, which the government decides to promote as an alternative to prevailing chemical heavy and costly agricultural practices that often degrade soil and contaminate water, is a step in the right direction. It is heartening to note the government raised the Budget allocation for agriculture ministry by over 78 per cent to Rs 1.39 lakh crore for the current fiscal, of which Rs 75,000 crore has been earmarked for the flagship scheme, PM-KISAN. Another significant move is the plan to form 10,000 farmer producer organizations (FPOs) in the next 5 years to help small and marginal cultivators team to get better rates for inputs and self-produce at higher rates.

Being the first woman Finance Minister to present a Budget, she stressed on how women can play a crucial role in improving the financial status of rural India, and how their contribution has been significant in every segment. To empower women financially, she announced an overdraft facility of Rs 5,000 for all verified women Self-Help Groups (SHG) member with a Jan Dhan bank account. Also one woman in every SHG will be made eligible for a loan of up to Rs 1 lakh under the Mudra scheme.

Facilities given to those availing housing loans by hiking the waiver of interest obviously benefits the upper echelons of the middle class -- around 7 lakh buyers. The measure may give a boost to the sector as reports reveal that huge number of flats in metros and their peripheral areas remain unsold. However, there is no mention of upgradation of slums and squatter settlements by making available sanitation and potable water facilities in metros and big cities and this aspect needs attention.

The question before Sitharaman was simple, either to stimulate consumption in the economy or put the fiscal deficit glide path in temporary cold storage? She obviously took the conservative path and decided to keep the fiscal deficit at 3.3 for the current fiscal though most economists would have been comfortable with 3.4 or 3.5 per cent in lieu of a growth budget.

This was again manifest in her approach to the social sector that witnessed a decline in overall allocation. In 2019-20, compared with previous fiscal, the share of this sector’s expenditure in total expenditure is expected to decline from 14.35 per cent to 13.82 per cent. This is despite demands for more resources for health and education. In fact, the proposed Rs 62,659 crore for health is just a nominal 15 per cent increase over the previous fiscal. Nearly half of the Rs 8357 crore increase will go into a central scheme for hospitalisation costs of the poor. Thus, poor social indicators, that have been a drag on the country’s development, will continue to persist. 

Finally, both Economic Survey and Budget talked of private investment driven growth, but perhaps there is no measure in the latter that may result in attracting such investment. Big promises have been made and long-term targets set. But the big question remains, where does this Budget help the common man and specially the youth, who are without employment opportunities? Moreover, there is no mention of proposed reforms. Undoubtedly, the Finance Minister played safe and announced a Budget that definitely lacks direction with no innovative thinking.---INFA

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