I tried real hard – but I just couldn’t recollect a single Budget in the past 50 years or so in which the elite of this country didn’t get together in huddles listening to the proceedings in rapt attention and at the end goes the verdict – given the situation we give the budget 9½ out of 10!
I thought I would rather first look at the economic situation we are in now and then try and decipher the budget of this year in those contexts.
Our current situation: My first point is that of data confusion syndrome. Thus, we found a past chief economic advisor commenting that all our growth data was in fact wrong and over-estimated – we really grew at 4.5% not at 7% as shown. So, credibility and transparency of intentions has to be uppermost! The other parts of the big picture as has already been acknowledged by the Government – is the slow-down.
Then we were told we want to become a 5-trillion-dollar economy in 5 years. Now, if you are a 2.7 trillionaire today, by simple arithmetic you need to grow 13.5% in the trailing 4 years. But setting tall targets is a good motivation sometimes so I was expecting a clue of the strategies in the economic survey – how much of that will come from which sector. If we just say we have to increase private investments – who will – those whose capacity utilisations are only 73% today? So, strategy – it is! Side by side prioritise on exports, prioritise on the unorganised sector (including the agri-sector).But then what appeals to the economist need not always appeal to the politician – remember Bertie Wooster…… (having just finished playing “Forty-Seven Ginger-Headed Sailors”) “Really speaks to me, that song, you know, Jeeves; ….. and Jeeves’ riposte…: I’m sorry to hear that, sir” (in Wodehouse’s “Tuppy and the Terrier”)!
My Take: Let’s now look at the Budget. On private investments and private consumption. I think quite a few mentions have been made particularly with reference to start-ups and stand-up India. I think – ease of business is what they look for and here the angel tax scheme – for no scrutiny would go a long way. The 25% tax bracket being extended for companies with turnovers of Rs 400 crores is a good initiative and it will cover 97% of the companies in numbers. But will these generate private investments? – no – private investments will come only piggy-backing on big ticket items like the PPP for Railways and the phase 2 of the Bharat Mala and Sagar Mala. I found these very positive. The Prime Minister had asked why private investments were not flowing into the rural sectors – the answer lies in the ease of business and contract enforcements as confirmed by the Economic Survey!
I could not find tangible directions in increasing exports particularly in agriculture, textiles as also in services. Also, too many items are on a 10-year timeline some on a 12-year horizon, say a “har-ghar-jal” or say a “SFURTI” – I feel lost there – I would look for a 10-year road map, with a 5 yearly target but with an annual milestone – which can be measured and reported each year. For example, Railways will spend Rs 50 trillion in 12 years – what are the items, this year; how much and where does it come from? – much under wraps! Three years back we were informed we will spend 1.8 trillion rupees on railway safety and engineering in 3 years – I’m no wiser where we are on those numbers today.
The Financing and the Revenue generation: Our borrowings increase by Rs 69,000 crores over last year, a hefty 11%, I’m also concerned at the intentions of borrowing in foreign currency – I hope there would be transparent and cost-effective mechanisms on hedging related risks. I heard an RBI Dividend of 90,000 crores was expected, this means the exchange fluctuation reserves would be touched. I do not read prudential financial management in these proposals.
On the tax front an 11% rise where the total revenue expenditure increases by a hefty 14% looks quite scary. The super-rich surcharge is good and so is the continuing tax rate on large corporates – there has to be visible efforts at corrections in income disparity – profound in our canvas. Whilst on taxation, the scheme for “face-less” assessment is welcome. On GST the fully automated refund system proposed is highly encouraging – even more – I have maintained that the software deployed should do away with filing of lengthy returns –all information is already there in the system on transaction level.
The recovery of 4 trillion in 4 years through the Insolvency and Bankruptcy Code is positive even though it looks small when you compare with the total NPAs at 10 trillion (having increased by 6 trillion in 4 years). The other sensitive point is “re-capitalisation.” In my view there has to be visible fixation of accountability and consequence thereof. This may help in liquidity with the NBFC – I think there has to be RBI guidelines in place for expending these 70,000 crore rupees pumped in. I was disappointed again with the disinvestments target of just Rs 1 trillion? We should be doing much more with prime assets of these PSEs.
Finally – the inevitable – where are we on down-sizing our government – cutting costs – “minimum governance”. Far from “minimising” I notice we actually increased our establishments costs by 5% to Rs 3.4 trillion (15% of our receipts).
And in conclusion: The Budget document looks better – but the contents should not sound good only to the Bertie Woosters – contents have to yield measurable results at the end and mean a better life for people of our great country.
(Binayak Datta is a Finance Professional and has been a consultant to the Asian Development Bank)
