Budget failed to address economic slowdown

By Prof. Nageshwar K  Published on  4 Feb 2020 9:56 AM GMT
Budget failed to address economic slowdown

Hyderabad: The nation was eagerly waiting for the union budget 2020-21 as the worst ever economic slowdown was haunting the country. The Indian economy grew at a very modest rate of mere 5 per cent while the last year's economic survey hoped for 7 per cent GDP growth rate. The economic survey for fiscal 2019-20 presented to the parliament along with Budget predicts a growth rate of 6 to 6.5 per cent. This is an exaggerated account as the International Monetary Fund (IMF) has estimated only a 5.8 per cent growth rate for India.

The Chief Economic Advisor to State Bank of India (SBI) has put the growth forecast somewhere between 5.5 to 6 per cent. Given this inflated growth estimates, the finance minister was more obliged to give the growth a kick start through the budgetary proposals.

But, the falling growth seems to be not in the list of priorities for the government as it still remains in a state of denial over the economy, registering a fall in almost every indicator. The sales of automobiles to five rupee biscuits were registering a fall indicating the gravity of the slow down. The Consumption Expenditure Survey identified the falling consumption of goods and services as the culprit behind the worst signals in the economy. Thus, even the most avid protagonists of the free market were also recommending a boost to public expenditure as an antidote to an economic slowdown.

Despite a dire need to give public spending a big push, the finance minister did precious little as overall expenditure stagnated if seen as a percentage of national income. But there was only a mere Rs 3.43 lakh crore increase in the nominal term in total estimated expenditure in the current Budget (2020-21) compared to the revised estimate of expenditure in the previous Budget (2019-2020).

The last year's Budget pegged the total central government expenditure at 13.6 per cent of GDP. But, the revised estimates put the figure at 13.2 per cent of GDP. The Union Budget 2020-21 estimated the total expenditure of union government at only 13.5 per cent of GDP indicating a virtual stagnation in overall public spending which is certainly uncalled for in a period of worst recession.

As the overall cake fails to expand, the contraction on marginal expansion was felt across various sectors, including those vital for augmenting the sagging growth.

The fall in consumption is much more evident in rural India as captured by the consumer expenditure survey. But, the allocations for the crucial rural jobs scheme suffered a massive decline. The total allocation for MNREGS has declined from Rs. 71000 crores to 61500 crores registering a fall over 9500(13.3%) crores which are unprecedented. There is a huge cut of Rs 70005 crore in the allocation for the Department of Food and Public distribution from Rs 192249 crore in the year 2019-20 to Rs 122235 Crore for the year 2020-21.

The Finance minister has begun her budget speech with the unveiling of 16 point action plan for boosting the rural economy. However, the action plan contained the proposals which are in the public domain for decades like increasing fish, milk, food grain production etc. But, the allocations for agriculture and allied sectors, irrigation and rural development together got just Rs. 19000 crores more.

This is not even a marginal increase as inflation would eat away the additional increase resulting in no additional spending in real terms. The finance minister has cleverly mentioned the allocations in this Budget without giving any comparative figures.

The overall projected expenditure of the total centrally sponsored schemes of rural development has decreased by 2.03 per cent. For the financial year 2019-20, the government had allocated Rs.75000 crores for PM KISAN scheme envisaging cash support to farmers. In this one scheme alone, the Revised Estimates is 21000 crores less than what the government had promised to spend. Now, given this experience, the allocations in the 2020-21 budget do not inspire confidence. Similarly, even in nominal terms, the allocation towards fertilizer subsidies for the coming year is 11 per cent less than the allocations for the year 2020-21.

Similar was the fate of education. The finance minister so eloquently announced that education put together gets Rs. 99,300 crores without stating the fact that this is mere 4500 crores higher compared to last year. The inflation will wash away even these gains too.

The finance minister in her budget speech claimed that creating a caring society is the objective of her estimates along with objectives like aspirational India and economic development. But, the fiscal contraction is quite pronounced in the budgetary allocations for social and welfare sectors. For instance, there is an only nominal increase in Anganwadi services (Core ICDS) of Rs.698cr, i.e., From Rs.19834.37 to Rs.20532.38 cr.

The Budget for total Central Sponsored Schemes/ Projects for Social Justice and Empowerment has decreased from Rs 1029.61 to Rs. 941 Crore. Allocations for the national fellowship for SC students have seen a decrease from Rs 360 crore in the last Budget to Rs 300 crore in this Budget.

Similarly, the Budget for National Social Assistance Programmes which include Indira Gandhi National Old age Pension Scheme, National Family Benefit Scheme, Indira Gandhi National Widow Pension Scheme, Indira Gandhi National Disability Pension Scheme and Annapurna Yojna has gone down from Rs 9200 crore to Rs 9196.92 Crore in this Budget.

Such a fiscal contraction was imminent even at a time when the government has to go for expanding public expenditure has become inevitable due to precarious public finances aggravated by lack of commitment to mobilize resources through taxing the rich.

There is a massive shortfall in overall government revenues this fiscal due to sluggish growth. The last year budget expected to garner 1.05 lakh crore through disinvestment of public sector undertakings. In reality, by January 2020, the total revenue clocked under this category was mere Rs. 18000 crores.

The government still claims that it would mop up Rs. 65 000 crores through disinvestment by the end of this fiscal. Meanwhile, this Budget estimated the revenue mobilization through PSU disinvestment at Rs. 2.1 lakh crores which include Rs. 90000 crores through financial sector disinvestment like the LIC and IDBI. Notwithstanding the fiscal irrationality behind disinvesting government stakes in profit-making PSUs, the LIC disinvestment will take at least a year. Thus, the disinvestment targets are unlikely to be met even the next fiscal too.

The 2020-21 budget estimated the tax buoyancy at around 12 per cent. But, this seems a difficult target as the government continues with its policy of tax sops to the Corporate. The government of India lost as high as Rs. 1.45 lakh crores due to a 10 per cent reduction in corporate tax. In this Budget, the government of India is budgeted to lose a revenue of Rs. 40000 crores due to changes in Income Tax and Rs. 25000 crores due to changes in dividend distribution tax.

Meanwhile, in Receipt Budget presented along with the Budget (2020-21) total accumulated unpaid direct tax from the corporates during last five years has reached Rs 7.63 lakh crore out of which Rs 1.30 lakh crore is not under any dispute.

Given this bleak revenue scenario, even the sanctity of the numbers in this Budget to is of the suspect.

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