The Budget 2019-20 presented by the finance minister (FM) Nirmala Sitharaman last week has received a mixed response. India Inc. itself is divided. Some industrialists have hailed it as “a blueprint to promote overall growth” while others have expressed disappointment over failing to address the challenge of job creation. Quite expectedly, members from the Opposition parties have termed the Budget as “visionless”, “insipid”, “routine”, “full of rhetoric” and so forth. Reacting to the Budget in such broad negative terms clearly suggests that the Opposition is refusing to elevate their role. After all, a sophisticated Budget requires a sophisticated response!
“Professional pessimists” is how Prime Minister Narendra Modi described the people who expressed doubts over his government’s overarching goal of taking the Indian economy to $5 trillion by 2025. The reaction of the middle class too has been mixed depending on whether one believes to be a net beneficiary or a net loser from the various provisions in the Budget.
While it is reasonable to evaluate how a Budget impacts an individual’s welfare or promotes an organisation’s agenda, it is wrong to assess and comment on the overall Budget purely from a narrow perspective. The Budget is prepared with a comprehensive view of society and economy. Therefore, one needs to take a holistic and dispassionate view in commenting on it. And anybody who does so will recognise that it’s a decent Budget both in terms of what it seeks to do and what it doesn’t.
In my view, it’s a decent Budget that seeks to address the twin challenges of economic growth and job creation by adopting a trajectory of inclusive growth. The Budget places emphasis on broad-based development through a slew of initiatives aimed at the promotion of agriculture (eg: creating 10,000 new farmer producer organisations) and allied activities (eg: creating bamboo, honey and khadi clusters), Micro, Small and Medium Enterprises (MSMEs) (eg: two per cent interest subvention for all GST-registered MSMEs on fresh loans), women-led growth (eg: easy credit to self-help groups), start-ups (e.g: an array of tax reliefs extended to them), traditional art and handicraft products in the global markets and so forth.
These broad-based growth initiatives mark a continuation of the pathway adopted by the Modi government in its previous term. These new initiatives should be seen alongside ongoing initiatives such as the Mudra Yojana (loans for economic activities by small and micro enterprises), the Skill India Mission (skilling youth for employment and entrepreneurship), the e-NAM (national e-market platform for transparent trading in agricultural produce), Stand-Up India (easy finance for promotion of entrepreneurship among SCs/STs and women) and many more. As these ongoing initiatives deepen and the new initiatives begin to take root, these should boost growth. The key idea is to democratise economic growth by creating a billion entrepreneurs in the country over time. Providing easy access to credit to those who have ambitions but no means and providing means and igniting ambitions in those who have none.
And this push to broad-based growth does not reduce the focus on the conventional sources of growth. The Budget is thinking big thereto. The Budget lays an emphasis on building infrastructure (rail, road, water and air), on affordable housing, on giving a push to electric mobility through its early adoption and so forth.
The FM has sought to maximise financing for growth and development through public expenditure/investments as well as attracting private investments. And in so doing, the FM has not thrown caution to the winds either on the fiscal deficit or on compromising on longer-term interests in seeking private investments, particularly foreign investments.
Public expenditure/investments are sought to be financed through a higher tax growth rate, mostly by higher tax compliance, imposing additional taxes on the incomes of the ultra-rich, sale and disinvestment in public sector undertakings and so forth. Similarly, to attract private investments the Budget has indicated opening a few more sectors to higher Foreign Direct Investment (FDI), attracting private investments through public-private partnerships, deepening of long-term bond markets (including the corporate bond market) to attract capital for infrastructure financing, relaxing norms for foreign portfolio investors in India, and creating a social stock exchange to allow social enterprises and voluntary organisations raise funds by getting listed in these exchanges. Some commentators have been critical of the Budget in not doing enough to encourage investments in the economy. It is important to recognise that the Budget has also been an exercise in self-restraint by avoiding measures to reap shorter-term gains in exchange for longer-term pains.
Undoubtedly, tabling of a Budget is an important occasion that sets the tone for growth and development during a fiscal year. Nevertheless, a Budget is not the be-all and end-all of what happens in any given fiscal year. A lot of reforms and important decisions get taken outside of the Budget. The Niti Aayog has already indicated that the government is coming out with a slew of reforms, including changes in labour laws, privatisation and the creation of land banks. The FM has already indicated that the Rent Control Act will be replaced by a model tenancy law. Also, the government is considering announcing a new industrial policy as well as a policy on agro-processing. All this appears to be a lot be achieved in the three quarters left in the current fiscal year. If only the government can implement what it has committed to doing in this fiscal year, it will have achieved a lot.
Furthermore, the Centre’s efforts at promoting economic growth need to be complemented by the states’ efforts. To give one example of how states can complement the Centre’s efforts, the Centre is developing 17 iconic tourism sites into world class tourist destinations. These sites are expected to serve as a model for other tourism sites. States are expected to take a led in the development of those sites. Assam, for example, has recently decided to promote over 300 tourism spots in the country in order to give a boost to tourism in the state. Tourism is known to have higher growth and is an employment multiplier. Other states need to do likewise.
After all, a target of being a $5 trillion economy by 2025 cannot be achieved by the Centre alone. States have an important role in giving a fillip to promoting broad-based growth and development. Those skeptical of the target may have a reason. But they must also recognise that broad-based growth has certain distinct relative advantages — of being less capital intensive, of being more efficient in resource use and having a shorter turn-around period in boosting growth.
