Events
& Issues
New Delhi, 10 July 2019
Key Factors & Budget
NEGLECTED, LACKS DIRECTION
By Dhurjati Mukherjee
Finance Minister Nirmala
Sitharaman had a challenging task as the Budget was presented in a situation of
faltering GDP growth, consumption slowdown, jobless growth, a truant monsoon
that has already hit kharif sowing, global trade tensions and a freeze in the
credit market that set alarm bells ringing across the financial system. Though
she painted an optimistic picture saying that within five years, the economy
reached $2.7 trillion, $3 trillion by the end of this fiscal and by next few
years shall be $5 trillion, she ignored core issues and finding innovative
solutions.
The Budget’s thrust
was on infrastructure development such as highways, waterways, regional
airports and power connectivity -- One Nation, One Grid -- that has ensured
power availability to States at affordable rates. Sitharaman proposed to make
available a blueprint this year for developing gas grids, water grids, i-ways,
and regional airports. The target investment of Rs 100 trillion over a 5-year
period looks encouraging, but only time will tell about actual expenditure
incurred and its judicious use. Besides, envisaged investment in infrastructure
has not specifically mentioned the role of private sector, which many
industrialists expect to be announced in due course.
Similarly, the
Railways got a budgetary allocation of Rs 65,837 crore and the highest ever
outlay for capital expenditure amounting to Rs 1.60 lakh crore. Significantly, Rs
7255 crore have been allocated for construction of new lines and Rs 2200 crore
for gauge conversion but it is here that private partnerships should help modernise
stations.
The funding of
expenditure has been a core question. Setting up a Credit Guarantee Enhancement
Corporation, action plan to deepen the long-term bond market and permitting
foreign investors to sell select debt securities to a domestic investor are
some of the measures proposed to fund the $300 billion investment required for
infrastructure. However, the hike imposed on fuel – which works out to Rs 250
per litre for petrol and Rs 2.30 per litre for diesel will have a cascading
effect and increase all-round costs. This could have been avoided or increased
by a nominal sum.
At a time when
creation of jobs has become imperative, which the government has stated, the
decision to modify the present policy of retaining 51 per cent stake in public
sector units doesn’t seem justified. Disinvestment target of Rs 1.08 lakh crore
for the remaining nine months of the current fiscal seem quite ambitious. It
would have been better if the government tried to gear up PSUs performance
through technology induction, modernisation and diversification, instead of
selling these to private owners, who aren’t really known for honesty and
integrity as well technical expertise.
The Budget has talked
of ‘new age skills’ and these could have been used in the PSUs to making them
profitable. The need of the hour is to bring more investment in economy and the
government shouldn’t expect the private sector to do so. Moreover, unemployment
situation is at a record high, and it remains to be seen how with this strategy
it will generate employment.
A noteworthy step
taken by Sitharaman has been to increase the surcharge on high net worth
individuals having taxable income above Rs 2 crore to Rs 5 crore and from Rs 5
crore and more by around 3 per cent and 7 per cent respectively. As per the
Finance Bill, 25 per cent surcharge on income above Rs 2 crore and 37 per cent
for those earning above Rs 5 crore will mean an effective rate of 39 per cent
and 42.744 per cent.
On the rural front, a
new scheme, Pradhan Mantri Matsya Sampada Yojana, was announced to establish a
robust fisheries management network and a boost to agriculture-based
traditional business. However, it is surprising that while the government has
publicised the launch of Jal Shakti Abhiyan across 255 districts in a big way
and promised developing water grid on lines of power grids, there seems to be
drop in funding for the Jal Shakti Ministry!
The concept of zero
budget farming, which the government decides to promote as an alternative to prevailing
chemical heavy and costly agricultural practices that often degrade soil and
contaminate water, is a step in the right direction. It is heartening to note
the government raised the Budget allocation for agriculture ministry by over 78
per cent to Rs 1.39 lakh crore for the current fiscal, of which Rs 75,000 crore
has been earmarked for the flagship scheme, PM-KISAN. Another significant move
is the plan to form 10,000 farmer producer organizations (FPOs) in the next 5
years to help small and marginal cultivators team to get better rates for
inputs and self-produce at higher rates.
Being the first woman
Finance Minister to present a Budget, she stressed on how women can play a
crucial role in improving the financial status of rural India, and how their
contribution has been significant in every segment. To empower women
financially, she announced an overdraft facility of Rs 5,000 for all verified
women Self-Help Groups (SHG) member with a Jan Dhan bank account. Also one
woman in every SHG will be made eligible for a loan of up to Rs 1 lakh under
the Mudra scheme.
Facilities given to
those availing housing loans by hiking the waiver of interest obviously
benefits the upper echelons of the middle class -- around 7 lakh buyers. The measure
may give a boost to the sector as reports reveal that huge number of flats in
metros and their peripheral areas remain unsold. However, there is no mention
of upgradation of slums and squatter settlements by making available sanitation
and potable water facilities in metros and big cities and this aspect needs
attention.
The question before
Sitharaman was simple, either to stimulate consumption in the economy or put
the fiscal deficit glide path in temporary cold storage? She obviously took the
conservative path and decided to keep the fiscal deficit at 3.3 for the current
fiscal though most economists would have been comfortable with 3.4 or 3.5 per
cent in lieu of a growth budget.
This was again
manifest in her approach to the social sector that witnessed a decline in
overall allocation. In 2019-20, compared with previous fiscal, the share of this
sector’s expenditure in total expenditure is expected to decline from 14.35 per
cent to 13.82 per cent. This is despite demands for more resources for health
and education. In fact, the proposed Rs 62,659 crore for health is just a
nominal 15 per cent increase over the previous fiscal. Nearly half of the Rs
8357 crore increase will go into a central scheme for hospitalisation costs of
the poor. Thus, poor social indicators, that have been a drag on the country’s
development, will continue to persist.
Finally, both
Economic Survey and Budget talked of private investment driven growth, but perhaps
there is no measure in the latter that may result in attracting such
investment. Big promises have been made and long-term targets set. But the big question
remains, where does this Budget help the common man and specially the youth,
who are without employment opportunities? Moreover, there is no mention of
proposed reforms. Undoubtedly, the Finance Minister played safe and announced a
Budget that definitely lacks direction with no innovative thinking.---INFA
(Copyright, India
News & Feature Alliance)
|