The third Budget of finance minister Arun Jaitley has not been able to live up to the promise of the Economic Survey (ES) released just three days earlier. It was a well-argued tract for the transformation of the Indian economy, after “global headwinds” and two bad monsoons. It argued for “careful economic management” and lay down the direction in which we must go. Though not everyone will agree with its many prescriptions, it took a completely different tack from earlier surveys.
The Budget, by contrast, is pedestrian, frequently praising and promoting the pet programmes initiated by Prime Minister Narendra Modi, making some changes that are cosmetic rather than substantial. When it does follow or lay down government policy, it reveals in its recommendations many facets that would benefit certain sections of business or go against the interests of the common man.
The Economic Survey lay bare the problems that afflict the economy, many of them known. For instance, it dwells on the crisis in the banking sector: “One of the most critical short-term challenges confronting the Indian economy is the impaired financial positions of the public sector banks (PSBs) and some large corporate houses”. As a result, the debt owed by these stressed companies has gone up and is now 41 per cent of all corporate debt. It is believed to be around Rs 2.7 lakh crore.
However, the finance minister only made a provision of Rs 25,000 crore in his Budget briefly indicating that the PSBs could get an infusion of capital by privatising themselves. The Economic Survey sees this as the chakravuha challenge of the Indian economy, “a metaphor for the workings of the Indian economy in the 21st century”, where the Indian economy has moved “from socialism with restricted entry to ‘marketism’.” This will probably be unpalatable to most political parties though a revamp of public sector banks is necessary.
Other important changes in the Budget proposals fall within normal parameters but they indicate a change in direction. For instance, direct tax proposals have been cut while indirect taxes have increased. Since indirect taxes are applicable for the entire population and not just the rich, they are an additional burden on the poor and amount to an inflationary pressure.
One welcome step has been to impose a 10 per cent tax on dividends over Rs 10 lakh, that were made tax free by P. Chidambaram during his tenure as finance minister in the UPA government. It was based on the thinking that with companies paying a 10 per cent dividend tax rather than an individual, it would save the harried taxpayer unnecessary paperwork. In reality, it ensured that the really rich got away with paying no tax, as they were in the highest tax bracket, and some even earned hundreds of crores in tax-free dividends. Yet, this essential reform still has some way to go and dividends must be made fully taxable.
Another controversial step is the invitation of FDI in the agricultural sector. By opening out the processing of fruits and vegetables to FDI, it is the government’s contention that the food processing industry and trade should be more efficient. While a thriving food processing industry would create vast employment opportunities in the country, to hand over this industry to foreign investment is a big blow to “Make in India”. Food processing would play a very important role in adding value to rural incomes and help in making the transition from poor by paid agricultural labour to an industrial job in a rural setting. It should have been the cornerstone of the government’s “Make in India” policy since the technology is available locally, not a Trojan horse to enter the yet forbidden field.
An idea presented in the Budget — of leveraging the assets of public sector units to generate resources for investment in new projects — is worth taking further with some caution. This was done with the government-owned defunct textile mills in Mumbai AND has scope for corruption as the mill land may be disposed off at lower than market rates, with the managers pocketing the difference. But a well-thought-out and properly implemented policy can turn around many of the sick units or invest in new sunrise industries.
Finally, one announcement in the Budget did not seem to make a lot of sense. The finance minister’s speech reads, “There is a situation of rising demand, near stagnation in production and consequent rapid increase in imports (for gas). As part of our drive towards self-sufficiency, the government is considering to incentivise gas production from deep-water, ultra deep-water and high pressure-high temperature areas, which are presently not exploited on account of higher cost and higher risks.” At the moment there are only two companies in the country, ONGC and Reliance Industries, with the capability to drill in deep waters.
This, says the Budget speech, is to be done “at a pre-determined ceiling price of natural gas to be discovered on the principle of landed price of alternative fuels”. These are much higher than local natural gas because of the huge transport cost of gas by ship. We know what happened in the offshore field in the Krishna-Godavari basin. Was the proposal to help a powerful conglomerate or was the sharp rise in the share price of after the Budget speech just a coincidence
The writer is a Mumbai-based freelance journalist
