Forebodings on ‘abysmal’ Budget have come true

Manpreet Singh Badal

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You are the stormy petrel to crime, Watson,” so said the legendary fictional detective Sherlock Holmes of his aide John Watson, as his arrival would often be precursor to case that would excite the master sleuth.

Much like that, the quality of Economic Survey is usually a harbinger of the Budget which follows it. So when this hitherto august document released yesterday, contained references from Wikipedia, one had a foreboding about the abysmal quality of the Budget. And dare I say, the Finance Minister did not disappoint. A nominal GDP growth of 10 per cent — even the staunchest supporters of the government would not buy this statistical fraudulence. The current year GDP growth (nominal) is expected to be 7.5 per cent. Wonder what gives the government to project a 33 per cent increase, when all evidence points to the contrary.

The aspiration or may I say the responsibility of keeping the fiscal deficit at 3 per cent originally, was brought down to 3.2, and the reality is at 3.8 per cent. There is no reason to be not skeptical of this 3.8 per cent figure either because there has been no clarity on off budget borrowings which the government has been resorting to in the recent past. Add to it, the deficits of the states and India’s cumulative fiscal deficit would be in the vicinity of 10 per cent.

No wonder the markets went into a tail spin as an aftermath of her speech. Perils of the government living beyond its means, and the dangers that come with it, for the overall macro economic situation, apart, this figure also puts a question mark on government’s ability to give the Keynesian boost to the flagging economy. The economists and business media may like to project economic management as an arcane affair, but in reality it boils down to only four broad parameters — consumer spending, exports, private sector investment and government spending.

Now, consumer spending constitutes almost 60 per cent of Indian economy (give or take a few) and it is absolute in doldrums — one just need a cursory look at the performance of real estate, retail, FMCG and automobiles to get a sense of this.

Exports, which on their own contribute to 2-3 per cent of the GDP growth, are also languishing. The government was hoping that the corporate tax cut late last year — Finance Minister continues to give florid self tributes to that decision till this day — would have revived the private sector investment, but analysis of RBI data shows that capacity expansion of corporate is stagnant at less than 75 per cent, so that measure hasn’t clearly taken off, the way government anticipated. This is exactly the reason behind my pessimism behind the efficacy of the income tax revision rates.

In view of overall slump in the economy and general apprehensions about the banking sector, one does not see consumer spending taking off. This eventually brings us down to government spending, which as mentioned earlier would be severely constrained by the deficit levels. There has been a 12 per cent decline in tax revenues, but still the Finance Minister expects the revenues to increase by double digit next year. Sorry to use the word — this is not optimism, this is an outright attempt to mislead.

One way out could have been to involve states in a consultative approach and come out with state-specific method to ignite their economies, but in a move that is quintessential of this government’s mistrust of states and fondness of centralisation, the Finance Minister spoke of the interim report of finance commission, which in the name of rationalisation calls for reduction in state’s say in the consolidated fund. One fears, that this paves way for high-decibel PR where Prime Minister would be launching pan-India schemes without consideration to each region’s unique requirements, without assessing the suitability and efficacy of these schemes for states, and then take credit of self-accredited “historic” announcements.

Finally, in the longest speech of a Finance Minister, in the history of independent India, the biggest problem facing India, scarcely found a mention. Unemployment is at an unprecedented high. Conservative estimates suggest that it is close to 10 per cent — and surely a lot of youth, who may be employed in the eyes of government statistics are not finding any satisfaction plying Uber/Ola taxis or selling samosas. The labour participation rate is a mere 43 per cent. In view of these glaring numbers, is it difficult to fathom why the youth of our country is so angry today? But then, to expect appreciation of youth’s concerns in a country, where the junior finance minister openly calls for shooting down the young would be a bit too much.

The writer is Finance Minister of Punjab