The annual Union Budget exercise is a many-splendoured thing — it means whatever you want it to mean, depending on where you stand. It is paved with good intentions, coupled with great leaps of faith, even though the past is strewn with broken promises and gross underperformance. A political statement, it gives an inkling of the government's thinking. It raises great expectations, but often ends in bitter disappointments. That businessmen praise it in public and whine in private is a given. This year was no different except that the scale of expectations was far higher, with GDP growth at an 11-year low of 5 per cent for fiscal 2020, a slide that has lasted six quarters.
When finance minister Nirmala Sitharaman tabled the government's Economic Survey on January 31, it sparked a lot of hope. Remarkable in its candour, the new decade's first economic survey admitted that government intervention in markets often ended up undermining their ability to create wealth. The survey kindled hope that the government would further open up the economy, bring in more competition, energise India's wealth creators and boost industry sentiment.
Unfortunately, Sitharaman's marathon budget the next day fell short on delivery. It offered no big picture, no admission of a slowdown. Instead we got a budget of small bangs. The mish-mash of measures didn't add up to any coherent vision — the budget seemed torn between liberalisation and socialist populism.
That said, given the severe fiscal constraints before the finance minister, there were some positives too. Sitharaman stuck to the fiscal deficit limit of 3.8 per cent mandated by the FRBM Act. The government sought to boost consumer demand by reducing tax on annual income up to Rs 15 lakh and announced measures to protect bank depositors and incentivise start-ups. It signalled an intent to rein in tax terrorism through a legacy dispute settlement scheme and a taxpayers' charter. It introduced some laudable moves in agriculture and infrastructure. An ambitious disinvestment target of Rs 2.1 lakh crore, 223 per cent more than what was achieved this fiscal, is at least consistent with the Modi mantra of minimum government. One of the economists in our cover story says the biggest virtue of this budget is that it does not contain too many negatives. Considering the history of India's budgets, this factor cannot be underestimated.
There has been much talk by the government of respecting our wealth creators. It had drastically reduced corporate tax to 25 per cent last year, adding to the cash balances of companies. Except that with a lack of demand and under-utilisation of capacities, the cash just lay uninvested. The removal of the Dividend Distribution Tax (DDT), where a company deducted 20 per cent tax at source, is welcome, but making shareholders pay tax on dividends could, depending on their tax slabs, take it up to 42.5 per cent from the existing 10 per cent. This move benefits foreign portfolio investors as they don't pay any tax in India, but punishes Indian shareholders and promoters, the real wealth creators.
One of the other big growth engines is exports. The Economic Survey recommended imports-led export growth, but this budget has done the opposite by hiking duties on some commodities. These protectionist policies are not conducive to economic growth or for making Indian industry competitive. There was little for the employment-generating auto and real estate sectors.
Our January 27 issue described the budget as a 'do or die' one. Besides the slowdown in GDP growth, investment and consumption too have been sliding, calling for major policy intervention. The small bangs in the budget appear too diffused for an economy growing at 5 per cent. Falling revenues make it worse. Tax collections fell short by Rs 1.45 lakh crore, disinvestment revenues by Rs 40,000 crore and GST revenues by Rs 51,000 crore. The government's social sector spending was the first to take the hit. PM-KISAN allocations fell by Rs 21,000 crore, the Pradhan Mantri Gram Sadak Yojana by Rs 5,000 crore (both in FY20), while MGNREGA expenditure has been curtailed by Rs 9,500 crore in FY21. The government is staring at a Rs 14 lakh crore deficit between total expenditure and net revenue. The assumption that disinvestment, non-tax revenue, dividends and profits from public sector companies will fund this gap is not supported by past performance.
Our cover story, 'More Bangs, Less Bucks', put together by our bureau, dissects the budget and looks at the road ahead. We also have a panel of eminent economists analysing the budget. The path to recovery is paved with uncertainties. India is teeming with entrepreneurs, but the budget has done nothing to stir their animal spirits, and the pall of gloom remains. Perhaps, given the inherent momentum of our economy and our favourable demographic, with a little help from the budget, an uptake could well be around the corner.
(India Today Editor-in-Chief's note for the cover story, More Bangs, Less Bucks, for February 17, 2020)