Interim Budget Reads More Like A Draft Election Manifesto

By
Nantoo Banerjee

Full
marks to Finance Minister Piyush Goyal for presenting an interim budget that
could as well be described as the first draft of the ruling party’s election
manifesto. Suffice it say that the
political mission of this budget may not be easy to emulate by the opposition.
Legally speaking, the budget provisions are valid only until the next
government presents a new budget for the fiscal, 2019-20. The reliefs and concessions are offered
mainly to small farmers and unorganised workers. Their actual financial impact
on the government expenditure is understandably unclear. No going government is
expected to impose fresh taxes for the interim period. The indirect taxes are
not in Goyal’s hand. It is largely regulated by the GST Council. By convention, tax proposals are not announced
in interim budgets. Goyal has merely
given some small financial sops to tax payers at the bottom. Contrary to the
given perception, middle-class gets little from the budget. Other seemingly
poll-linked multiple budget concessions to the underprivileged may only mean
much higher budget deficit for 2018-19 than estimated in the document.

The
finance minister has already indicated a higher fiscal deficit for the current
financial year at 3.4 per cent of the GDP. The additional deficit is expected
to be met through further borrowing. Thanks to the expansionary budget, a rate
cut by the Reserve Bank of India, which was seen as almost a certainty before
the budget, now looks very unlikely. By increasing spending and borrowing, the
government will be boosting consumption and widening the fiscal deficit. This
may, in turn, lead to an inflationary pressure, reducing RBI’s headroom to cut
key interest rates.

The post-budget bond market reacted
sharply to the finance minister’s announcement of higher-than-expected fiscal
deficit this year. The corresponding
borrowing burden on the market saw 10-year bond yields jump 11 basis points to
close at 7.38 percent. As in the case of
election manifestoes, the current budget played more on the public sentiment
and mood, especially the rural and urban India vote bank, than solutions to
long-pending economic problems. The government is fully aware of its financial
limitations. The interim budget will at best cover 45 days of the government
spending of the 2019-20 fiscal. The government borrowing will increase this
year as also the next year, no matter which party or political combination
comes to power.

In
fact, the prime minister’s tacit
acknowledgement that the current budget exercise is aimed at pleasing as many
constituencies as possible — “from middle class to labourers, from farmers’
growth to the development of businessmen, from manufacturing to MSME sector;
everyone has been taken care off” — should be a matter of concern. The prime
minister called it a “trailer of the (next) budget which, after elections, will
take India on the path of development.” Of course, the prime minister assumes
that the budget will highly please the people and strongly influence them to
buy his party’s economic vision and political mission and send his party back
to power. There is no doubt that the provisions in his government’s midterm
budget and his post-budget statement throw up a big challenge before opposition
parties and the next government — even if it is led by BJP — to implement the
measures. It is assumed that the economic and employment growth will be
automatically driven by the budget objectives and provisions on human
development.

The
ruling party tries to give an impression that its economic policy will be the
growth driver while politics plays more like a fail-safe auto pilot. In
essence, the budget seeks to please all — from the poor and underprivileged to
small farmers, agricultural workers, small and medium enterprises, low-tax and
non-tax payers, employees and self-employed, underemployed, unemployed,
householders and even ragpickers. The proposed pension scheme for nearly 10
crore informal sector workers will provide some small old-age income security
to them. It will be one of the world’s largest pension programmes in terms of
beneficiaries. Quizzically, the budget is silent on where the fund will come
from and how will a cash dole of only Rs.500 per month to small farmers and
old-age monthly pension of Rs. 3,000 to the underprivileged boost the economy.
The budget does not talk about mega industrial projects and infrastructure
expansion and jobs of permanent nature for our millions of young freshers from
engineering colleges, management and science institutes, schools, colleges and
universities.

Breaking
away from the tradition, the government dropped the pre-budget presentation of
past-year economic survey. The unusual step may have been taken in the face of
some uncomfortable hard numbers that reflected a poor performance of the eight
core sector industries accounting for around 40 percent of the country’s
industrial production. Foreign trade and employment generation are among other
important parts of the economic survey. The country has performed poorly in the
field of exports while imports continued to escalate leading to very large
trade deficit. The worst performance has been in the area of employment
generation. A pre-budget economic survey couldn’t have omitted the National
Sample Survey Organisation’s latest report that placed the country’s
unemployment rate at a 45-year-high of 6.1 per cent in 2017-18. The report has been at the centre of
controversy after two National Statistical Commission (NSC) members, including
acting chairman, resigned just three days before the interim budget
announcement, alleging that the government had withheld its release despite the
NSC’s approval. The rate of joblessness among youth was at a significantly
higher level compared to the previous years and “much higher compared to that
in the overall population,” said the report. Instead, the stand-in finance
minister repeatedly tried to establish that economic growth automatically
steadies employment growth. Unfortunately, this does not happen in a vastly
import-led economy such as India. (IPA
Service)