Jaitley Ji, Where Are The “Big Bold Ideas?”
As soon as the Budget speech was over, mercifully in under A two hours, the platitudes began to flow: “a breakout budget”, said the bhakts. “A corporate-friendly budget”, sneered the left. I tweeted the latter charge, adding: “Corporate-friendly but little for the aam aadmi, and the poor completely forgotten.” One can point to the elimination of Wealth Tax and the phased reduction of corporate tax as evidence for the latter charge But this is well-ploughed ground: one must look beyond the obvious criticisms and see how the Budget will or will not change the lives of Indians for the better.
Unlike last year’s underwhelming laundry-list, this year’s Budget did contain a vision for the future, albeit one again falling short of the “big bold ideas” Mr Jaitley liked to insist upon when he was in Opposition. We had already been warned, in yesterday’s Economic Survey, not to expect any of the big-ticket reforms the world had been hoping for: “Big-Bang reforms as conventionally understood,” the Survey had argued defensively, “are an unreasonable and infeasible standard for evaluating the government’s reform actions.” Instead, it called for “a persistent, encompassing, and creative incrementalism”, which is more or less what we’ve got in the nine months of the Narendra Modi-led central government.
The Finance Minister’s speech was fine; as is too often the case with this Government, words, rhetoric and sound-bites are what they are good at. But in the face of a lack of adequate resources abetted by low tax collections, a dangerously high fiscal deficit, and weak corporate spending, it’s not enough. Implementation of the soaring vision of a growing, prosperous and just India is where the challenge lies. Here the auguries are less promising. Once again, for instance, we heard a great deal about infrastructure,
and investment therein. But how exactly is more investment in infra going to transform India, at a time when incomplete projects costing Rs. 18 Lakh Crore (about 13 percent of GDP) have tied up public and private funds in stuck infra projects right now? The only yardstick that matters is change on the ground, not good intentions in North Block. Here, achhe din haven’t dawned yet. The decline in global oil pricesis partially responsible for the slight improvement in the recent economic figures boasted about by the Government. Every year India spends almost 12% of its GDP in importing commodities such aspetroleum, gold, coal, vegetables oils, fertilizers, and silver, which constitute 51% of our country’s total imports. A decrease in the global prices of these commodities has benefited our economy by improving our current account, controlling inflation and consequently increasing GDP growth. The Government can hardly take credit for these changes. But it has offset the declining oil prices by levying an additional cess of Rs. 6 at the pump, up from Rs. 2, which will directly hit the aam aadmi. From a macro-economic perspective, there are some real worries about how the Finance Minister will achieve fiscal consolidation with his budget. Put bluntly, Mr Jaitley’s tax numbers don’t add up. The fiscal deficit for April-December 2014-15 is at Rs. 5.32 lakh crore and has surpassed this year’s Budget Estimate of Rs. 5.31 lakh-crore by 0.2%. However, last year’s fiscal deficit for the same period was 93.9% of the Budget Estimate for FY 2013-14. The higher deficit is mainly because of the low revenue collections, which are in fact much lower than the figures projected by the Government in its overambitious maiden budget for FY 2014-2015. So where’s the extra revenue going to come from? Mr Jaitley doesn’t say.
And what happened to the Expenditure Reforms Commission he mentioned in his last Budget speech, in July? Where are the promised reforms?
The long term debt of the Government saw an increase of US$ 8.01 billion, between June 2014 and September 2014, despite the Government’s continuous criticism of the long term borrowings of the UPA. By November 2014, the Government had already borrowed 98.9% of the Budget Estimate for FY 2014-15. Where is the prudent financing that the Government had claimed it would deliver?
Mr Jaitley pointed to three “major successes” of his Government: the Pradhan Mantri Jan Dhan Yojana, the transparent auction of coal blocks,and the Swachh Bharat Abhiyan. Let’s take each in turn.
The success of the Pradhan Mantri Jan Dhan Yojana is questionable. While the Government claims to have achieved a financial inclusion of 100%, the urban poor remain excluded. Beggars, rag pickers, small vendors, slum dwellers and the homeless who live on the many streets of our large cities have been completely overlooked by the Government in all its schemes, including the scheme for financial inclusion. More important, it’s all very well to boast about 12.5 crore new bank accounts, but 73% of the Jan Dhan bank accounts have reported zero balance. How does an empty bank account help change anyone’s life?
Coal auctions - imposed by the Supreme Court rather than a policy preference of the NDA - may have been a good idea, but their efficacy must be judged by whether the coal gets to the power stations that are currently starved of fuel sources, and by whether we can cut back on our imports of coal, which were always absurd in a country with the world’s largest reserves of the black stuff.
And as for Swachh Bharat, this is increasingly looking like a series of photo-ops, with grandees picking up brooms for the camera and never touching them again until the next camera is scheduled to come by next year. Toilets are being constructed, but are they being used, and are they being cleaned? Is there water and electricity in them? Surveys suggested the real figures are dismal. From a Budget point of view, considering the importance of the campaign, it should be granted funds from core budgetary allocations to achieve reasonable targets. There aren’t any, just vague talk of a possible Swachh Bharat cess levy. The Government should focus on making hygiene and sanitation about human dignity and a community initiative rather than a tax liability. All credit to the PM for raising consciousness about this issue, but in the absence of credible Central funding and community adoption of the scheme, it is bound to remain a laudable idea rather than a life-changer.
The Finance Minister clapped himself on the back over what he, echoing the Economic Survey, called the JAM Trinity - JanDhan, Adhar and Mobile- to implement benefits through direct transfer. But this “jam” was actually the UPA’s “bread and butter” - schemes devised by the UPA government and sneered at by the Opposition at the time. I’m sure it was too much to hope for Mr Jaitley to acknowledge this.
I don’t see any reforms to improve the financial health of the banking sector, with banks reporting restructured assets worth 12% of their total assets.A sharp increase in Non-Performing Assets has also adversely affected bank stocks across the country. The Government needs to resolve this issue of bad-debts so as to free the worst affected borrowers, especially the power and infrastructure firms. But there was no mention of this vital issue in the Budget speech.
One major reform suggested in the Budget speech was the creation of a single market for agricultural goods, overruling individual states’ agricultural produce marketing Acts. But given that the States will undoubtedly resist this encroachment on their prerogatives, how exactly does the Modi Government hope to reconcile this reform with its much-vaunted new spirit of “cooperative federalism”?
The economy is also witnessing a slackening labour market, with rural wages registering an annual growth of 3.8% in November 2014, after recording its highest growth at 26% and an average growth of 18 % during a five year period between 2009 and 2014. Agriculture and allied sectors have registered a decline in their growth rate, recorded at 3.5% in the first half of FY 2014-2015. It is much lower than the 4.5% recorded in the same period for FY 2013-2014. A fall in wages and employment opportunities will undoubtedly push rural youth into our limited urban spaces, where the NDA Government can only offer them slogans about “Make in India”. They need to “make it” in India, but for that they need real jobs they can do. Where are these coming from? Slogans and sound-bites don’t make factories run.
Effective measures to help the poor, who constitute 29.5% of the total population, have still not been introduced. Of India’s total population,30.9% of the rural population and 26.4% of the urban population is still living Below the Poverty Line (BPL). The Government has to still initiate schemes to fulfil its promise of creating slum free cities and little has been done to provide for pucca houses for the poor in rural areas, besides the UPA-created Indira Awas Yojana (IAY). In fact overall allocations for housing and health have both been slashed since the last budget, each by around 20% of previous allocations. Key areas have been neglected. Ambitious targets have been announced for new and renewable energy,but no concrete measures have been announced in the Budget to make them a reality: no tax-free bonds, specific allocations or tax incentives, for instance.
In Opposition, Mr Jaitley had long attacked the UPA’ service taxes, joking that he couldn’t use the “sulabh sauchalaya” at Lodhi Garden on his morning walks because toilet use would be taxed since it’s not on the negative list of service tax exemptions. Now, he has in fact increased the number of items attracting service tax and raised Service Tax by nearly 2%, which will increase utility bills, food costs - and the cost of his urinal. He has flushed his own objections down the toilet. That’s one thing he won’t mind being accused of - taking Swachh Bharat too literally.
(Author is a Member of Parliament and former Union Minister)