The Budget for FY20 is a work-in-progress exercise by the NDA government. It is generous on policy announcements to be implemented in the next five years. All measures project the government’s long-term thinking. Also, it provides a consolidated picture of government’s perception of its accomplishments during previous five years. The aim is to take the economy to a $ 5 trillion level as compared to near $ 3 trillion at present by attaining 8% real GDP. On the eve of the budget, the Indian economy suffered from a plethora of problems like slowing economy, peak unemployment, shortage of finance, farm distress and absence of demand pick-up coupled with nil greenfield expansions. In contrast, expectations were sky-high. Despite the government’s honest intentions, somehow the eagerly awaited post-budget feel-good factor could not materialize. Most important reason was that timing of some policy announcements was wrong considering the prevailing challenging times. Besides, the budget did not have any immediate investment stimulus proposal.
Negatives are many. First, considering the ambitious policies proposed with resources not in sight for the country’s mammoth requirements, adhering to the fiscal target would be difficult. The proposal of a foreign bond issue would demand government to be fiscally responsible. A strong measure like the Sovereign Bond plan seems to have been added at the eleventh hour. Borrowing foreign currency to meet domestic fiscal deficit in principle is risky. Temptation is huge but risks far outweigh the attraction. Assumptions underlying the revenue projections for the ongoing fiscal year have raised fears that the era of a rampaging tax bureaucracy may not have been over yet. Though the NBFCs issue has been taken up seriously by the FM, what started as a liquidity issue is quickly turning into a solvency issue in some NBFCs. The NPAs problem NPAs problem of the banking system, for example.
Budgetary proposal to tax the mega rich to garner resources has not been liked by the market. The super-rich tax may also hit about 2,000 foreign funds. This can be justifiable in normal times and not when the Indian economy is passing through challenging times with dismally low animal spirits. A clear stand by the government on critical external issues was much needed as India is fast integrating in the global value-added supply chains. Supply chains are undergoing their most dramatic transformation in decades towards shorter, faster and smarter supply chains as potent weapons. There are many global economic wars being fought that could lead to damaging economic consequences.
On the other hand, the budget shows many positives which include commitment to the fiscal consolidation path both in FY19 and FY20 and spreading out the proposed Rs 100 billion infrastructure investment among railways, ports, roads, power, water and affordable homes—all sectors carrying maximum multiplier effects thereby strengthening infrastructure connectivity and linkages in the economy. The massive Rs 50 lakh crore investment target to expand and upgrade the railway network by 2030 can be the potential game-changer. Government seems to be cognizant of the challenges facing the MSME sector, where action is an ongoing task as there are no quick fixes. The budget at MSMEs operational side considers a payment platform for MSMEs to enable filing of bills and payment thereof on the platform itself. The FM also provides welcome policy measures towards inducing an active and thriving corporate bond market. Realizing the importance of growing tax revenues, the attempt is also made to plug tax loopholes by establishing effective regulation and compliance norms. The FM has also provided a meaningful push to the E-Vehicle race. For the EVs to gain prominence in the economy, economies of scale need to be created so as to produce affordable EVs.
In a welcome move, the PSBs have been given a big shot of Rs 70,000 crore, which needs to be spent in one shot and not staggered over the next few years. Necessary banking reforms need to be speeded up so as to take full advantage of the massive recapitalization move. Opening up recourse to record disinvestment/privatization measures requires appreciation. The well thought-out boost to startups is positive. However, much more needs to be done on this front. Above all setting up a new Ministry of Water that would take an integrated policy perspective, though a belated move, is positive. In sum, the economy certainly has begun the race towards becoming a $ 5 trillion economy by 2025. To fulfill this, a number of smart ideas have been introduced. Only time can prove whether the Budget ticks the right boxes as the structural reforms to create the apt eco- systems for all such smart ideas are yet to take place. Taking recourse to protectionism to support ‘Make in India’ plan is not a wise move.
Besides, reducing cost of doing business is as important as creating ease of doing business as only then the economy will become competitively sustainable. FM has rightly placed more reliance on private companies to drive investments. But setting the agenda for realizing this goal has not been properly addressed. No wonder, the budget has failed to give rise to an investment led virtuous growth cycle as visualized in the Economic Survey and even in the budget, which is crucial to attain the $ 5 trillion size. The hope is seen in the belief that a lot can happen outside the budget.
The writer is an economist, and a former director of ERTF
- KIRAN NANDA