Fair, could’ve been better

Raminder Gujral

The last, full pre-election Budget of the Modi government is a “comprehensive Budget”, with particular focus on farmers, rural population, the poor, and the health and education sectors. There are a slew of schemes for the farmers, rural and the “poor” segments. In the education sector, the focus is on tribals through the Eklavya model schools, and revitalising infrastructure (Rs 1 lakh crore over four years, institutes of eminence, etc.). For the health sector, in addition to new colleges, etc., the announcement of “universal health coverage” scheme for 10 crore poor families, for indoor treatment coverage up to Rs 5 lakh per annum, is a “bold” step, albeit with only Rs 2,000 crore budget provision. 

The Budget covers MSMEs, concessions for senior citizens, SC/STs, tourism, airport connectivity, and other sectors. Employment generation is to be supported through government contribution of 12 per cent of wages for new employees in all sectors over the next three years. 

For the railways, the Budget provides for  a 10 per cent increase in BE FY19 over the RE FY18. For roads, the 35,000-km Bharat Mala  programme (Rs 5.35 lakh crore) through the NHAI, using extra budgetary resources (EBR) — vide funds raised through toll-operate-transfer (TOT) or InVITs  — is commendable. 

The Budget speaks of opening up of the defence production to the private sector. To take care of NPAs of public sector banks, bank recapitalisation is proposed through recap bonds. Subsidies (including food, fertiliser and petroleum) has been pegged at Rs 2.93 lakh crore in FY19, as against Rs 2.64 lakh crore in FY18. On the revenue side, direct tax revenue is projected to grow at 17 per cent. Disinvestment revenue is budgeted at Rs 80,000 crore in FY19, including Air India. Overall, the fiscal deficit (FD) for FY18 is projected at 3.5 per cent of GDP, while for FY19, it is projected at 3.3 per cent. 

Clearly, the proposed expenditure budget is comprehensive. However, the question to be asked is if the Budget meets the current needs/expectations? 

But first, the list of major challenges being faced by the economy — stress in the rural and agri sector; inadequate job creation (in the context of high annual population growth); twin balance sheet problems (of NPAs and overleveraged corporates); stressed unorganised sector and small businesses and exporters; decline in GDP growth to around 6.5 per cent in the current fiscal; inadequate export growth, after two years of decline, and declining “inward remittances” coupled with increasing imports of gold, electronics and oil; vanishing trade windfall from lower global commodity prices, particularly crude oil; US Fed’s move towards hiking interest rates, necessitating fiscal prudence by India; and increasing belligerence of our neighbours, necessitating greater defence preparedness.

The Budget has overwhelmingly addressed the issue of stress in the rural and agri sector. As regards NPAs, the government had taken the much-needed bold steps of IBC, and recapitalisation of banks, which will take care of the issue over the next two years. It is fortunate that recap bonds (not “perpetual bonds”) are not presently being viewed by FIIs/rating agencies as contributing to fiscal deficit. 

For job creation, while government support for new employees is good, it is not enough. Job creation would significantly improve only with increase in GDP growth. To boost growth, what is required is to boost private investment. Stalled projects need to be pushed through (with clearances for land, environment, forest, etc.). The government had initially recognised the need to reform the ill-advised land acquisition legislation enacted by the UPA. Similarly, labour reforms are needed to boost sentiment for private investment. But it appears that political considerations have made the government drop its endeavours in that regard. Nothing has been done to relieve the stressed thermal and renewable power sectors, or construction sector (excluding road development). 

The skilling initiative of the government has not been successful. No doubt, the increase in import duties, particularly of electronics items, would support domestic manufacturers, but “Make in India” has largely remained a slogan, with nothing substantive, in the form of tax incentives or preference in government procurement. 

The unorganised sector and small businesses have been left to fend for themselves. There is no support for the export sector. Incentives/subsidy for unrebated taxes (like on petroleum products and electricity, which are not covered under GST), and support in the light of rupee appreciation, have not been considered. The issue of likely stress on CAD, due to declining inward remittances and increasing import of gold and oil has also not been mentioned. There is no meaningful increase in the defence capital budgetary allocation for boosting preparedness. No real concessions have been provided for the middle class.

As regards fiscal prudence, the Budget indicates a fiscal deficit of 3.5 per cent in FY18 and 3.2 per cent in FY19, as against the goal stated last year of 3 per cent for 2018-19. Keeping in view the high expenditure needs (and the absence of fiscal manoeuverability post the acceptance of the Finance Commission recommendations on devolution of taxes), the slight slippage in the FD figures would be accepted by the markets. However, this is subject to the figures being credible. 

While the tax and non-tax revenue projections for FY19 appear fine, there could be challenges regarding the subsidy figures (food subsidy due to the proposed enhanced MSP for kharif crops; petroleum subsidy as projections appear to have been made on crude price of $65; and the backlog of fertiliser subsidy), and the requirement of funds for the universal health scheme. However, given the likely stabilisation/normalisation of  GST, and tax buoyancy, the revenues (both tax and non-tax) could exceed FY19 projections. What is, indeed, commendable is the exceptionally high revenue generation by DIPAM (disinvestment), direct tax buoyancy, and the raising of EBR for the road sector (as also the education sector). 

Overall, while some more aspects for growth and employment could have been considered — given the fiscal constraints — this pre-election Budget is, in fact, a well-thought-out, good economic Budget. 

The writer is a former Union Expenditure Secretary