While the markets are euphoric and people close to the government have been hailing this budget as pathbreaking, there are a few basics that need to be understood first.
1. An all-time high in GST collections does not mean an economic turnaround. The government has already spent Rs 20 lakh crore on Atma Nirbhar Bharat (ANB). There is another Rs 10 lakh crore that have been spent by the RBI on various sectors through several schemes. All money spent must result in GST collections – at an average rate of 12%. Thus, the more the government spends, the more should the GST be. In fact, simple back-of-the-envelope calculations show that the government has not collected Rs.3 lakh crore. This could be either because the tax has not been collected, or because the money has been stolen and sent out of India through the hawala route. The table alongside explains these numbers. The Budget is silent about this.
2. The government has talked about the huge sums being spent on healthcare. A good move. But where are the doctors? Why are the number of seats in medical colleges not being increased ten-fold? Why is India still sending out thousands of students to study medicines overseas? Ditto with nursing colleges and other technical staff for medicare.
3. The investment that a $ 5 trillion market requires is at least Rs 112 lakh crore. The total budgetary provision for investments just 5.54 crore (see chart). Add to this another $80 billion of FDI (Rs 6 lakh crore). We are still Rs 100 lakh crore off the required level. There are no real sops for investment protection and dispute resolution. So, kiss your dreams of FDI goodbye.
4. The government talks about farmer welfare. But there is no move to reward the largest milk producing state, Uttar Pradesh, with Rs 26 a litre, which is the price most states in India pay. UP is a BJP ruled state, yet it pays farmers barely Rs 18 er litre. The government has not done anything about paying farmers Rs 20,000 per head of non-lactating cattle – in states where farmers cannot sell their old cattle. Tat is the amount farmers used to get. In Karnataka – another BJP state, even sale of buffaloes was sought to be stopped, but the courts have intervened. This is not farmer protection. If old cattle can generate money, let the government find people who will purchase the cattle for Rs 20,000 per head, and give it to the farmer. Then these entrepreneurs can make as much money as they want. Nobody will resent that.
5. Lastly, the infrastructure spend is welcome. But it is a long fuse. Will take at least five years. So why are the markets exuberant? For the same reason why the US markets were on a high. When too much money is easily available, asset bubbles are bound to emerge. That is why the stock markets are going up.
This author keeps his fingers crossed.
The author is consulting editor with FPJ.