The Economic Survey’s Wealth Creation was interesting and it shows how every single country excepting for Ancient Greece, Egypt, Turkey, Iran and China, have all been creating great wealth in the past – and are no good at present. The point in my view, is comparing yourself always with yourself-of-the-past will never make you better than what you were in the past! Our problem – endemic in a way, in my view, is one of denial. Let’s accept we have a problem in our hands in the first place – yes, we did a fantastic job certainly at places and we are good still at our macros eg our Forex Reserves and our External Debt servicing – but we have great problems in our imports, exports, bank credit, core-sector growths and as a result in revenue collections and creation of jobs! Our GDP Growth therefore has been the slowest in 12 years! And it’s no use putting it all on “weak Global Growth”. If I add the off-budget financing commented upon by the CAG itself our deficits go up to 5.5% and if I add the States’ deficit the total deficit would come to around 9% which is way above the FRBM Cap of 3%! I missed in the Economic Survey anything much on inflation. Picasso writes to Patrick O’Brian (for his biography) in March 1970, and he says, “The chief enemy of creativity is ‘good’ sense…Our goals can only be reached through a vehicle of a plan, in which we must fervently believe, and upon which we must vigorously act…” I read this – in context of this piece. It is “good” sense that will matter and it has to be through a plan in which we believe!
First, what were our lessons from our 12-year-low performance this year? I see them as: a) Time to focus on the Demand Side rather than on the Supply Side – we have huge inventories, so we don’t produce, when we don’t produce, we don’t need people, when people have no jobs, they won’t spend and when they won’t spend inventories grow. So, money has to be put in the system, particularly in the rural sector. b) Fix the Financial Sector so bank and NBFC credit returns to the system, c) Boost private investments and d) reduce inequality in distribution of wealth. Let me now proceed to examine some of the proposals in these backgrounds.
My Take: I found too much on the great work done in the past but am non-plussed on why that results in the downslide we see ourselves in. The nominal growth expectation was stated at 10% for the year 2020-21.But why speak “nominal” growth, when we normally compare “real growth”. Will the real growth stay around 5% without inflation then? On deficits: violating the FRBM un-anticipating the inevitable is not good money-management, in my view. Now, the 4 trillion infrastructures to be financed from disinvestment proceeds 2.1 trillion looks too optimistic to me considering that there has not been yet a serious structuring of deal for any of the 33 PSUs on the block. Second, if the nominal growth is 10% how do you manage that with a tax-collection growth of hardly 8%?
My second point is on Data. When too many figures are read should the benchmark numbers (say, last years’) be stated also? So, we weren’t wiser whether to rejoice or not for example so much was said on agriculture – the last line is Rs 1.54 trillion being budgeted in place of last budget of Rs 1.51 – so what’s new? Why didn’t we do the warehousing and supply chain improvement this year itself?
The use of the negotiable warehousing receipt could mitigate liquidity. MNREGA being extended is good news, that’s the scheme which puts money directly to our rural brethrens’ hands – the allocation however is 14% less than last years’ actuals and allocation for the “PM Kisaan”, the scheme which transfers Rs 6,000 to small farmers directly is same as the budget last year.
The proposal for using barren lands of farmers for generating solar power is an excellent idea – I would start yesterday! So, that was on increasing money to the consumer.
My second point was on repairing the financial sector. I don’t think the “consolidation” of ten PSBs into four, achieves anything great. Its accountability we should look for – for example infuse capital only to banks which show performance. It’s good to allow IPOs for LIC and IDBI. The proposals for the Debt ETF and subordinate debts for working capital for MSMEs is good.
The third point was on private investments; particularly on infrastructure. Here I think we need policy stability, not swinging between non-economic ideas that repel investments.
The online degree programme, the data-centre parks, the “nirveek” scheme augmentation for exports are excellent ideas.
I think a lot more was required on Tourism and Culture. We get only around 25mln foreign tourists a year against China’s 60! That’s the scope. And it’s a highly job-generating industry!
In tax proposals, reducing exemptions and deductions is a good idea, too many slabs would complicate matters unnecessarily. The Tax-Payers’ charter is an excellent idea – I’ll wait for this.
We are down 10 places to 68th out of 140 on the WEF Global Competitive Index. Viewed in this light, steps towards visible improvements in our global competitiveness would help!
And in conclusion: If I were to sum up – I must say it was a lengthy document with some good proposals, a few high sounding ones but certainly not very clear on Picasso’s vehicle of a plan, in which we must fervently believe and reach the $5 trillion target in 5 years!
(Binayak Datta is a Finance Professional)
