The final countdown

A recent CAG report on government finances, tabled in the Parliament in the winter session, graphically noted that the share of capital expenditure in the total expenditure declined from 13.24 per cent in 2015-16, the second year of the Modi Government, to 11.12 per cent in 2016-17, its third year; albeit the presence of the fact that there was enhanced public investment under the public-private partnerships module in infrastructure industries, particularly in the Indian railways. Interestingly, the CAG report also railed against the tendency of the various departments/ministries of incorrectly classifying revenue expenditure as capital expenditure and vice versa. The overall impact on the government expenditure was an understatement of revenue expenditure by Rs 1,477.22 crore for 2016-17 and an overstatement of capital expenditure to that extent!

Ever since the entry of the NDA after a decade-long UPA dispensation in 2014, the feisty Jaitley as the finance minister had not produced any budget that affected a tectonic shift in slashing direct taxes or corporate taxes. Though he promised to prune corporate tax to 25 per cent when he presented the NDA's full-fledged budget on 28 February 2015, in four years time, he is nowhere near the promise; although some perfunctory incremental cuts were made that in no way gave an iota of relief to the high-cost domestic economy, making the act of doing business a daunting challenge. For the companies, whether in manufacturing or in services, the high corporate tax with a few exemptions makes the transaction cost a formidable barrier to spare resources for expansion, modernisation or new investment so that seamless growth is generated with an adequate number of employment. In a country where one million jobs need to be created every month, the government cannot create jobs on its own or let private entrepreneurs do this in the woeful absence of an enabling environment for ensuring the total productivity of land and labour.

With reports doing the rounds that the last full-budget of the NDA is likely to focus on rural distress, job creation and steps to rev up economic growth, with the 2017-18 first advance GDP estimate pegging growth at 6.5 per cent, the manufacturing sector, which is in a terminal stage of illness with average annual growth nowhere near the eight per cent growth for far too long, the one and only mitigating measure would be a steep cut in corporate tax so that entrepreneurs would be left with a modicum of funds to focus on their core areas of operation. It is not that the investment milieu had worsened during the NDA regime as the malaise began as early as 2012: after the then government administered fiscal booster doses or what is inelegantly christened as dropping helicopter money in the wake of the 2008 world financial meltdown, which had petered out by then, leaving in its train the demon of double-digit inflation for a few years. It is a recorded fact that investment in the domestic economy has declined from 34.3 per cent of the GDP in 2011-12 to 27 per cent of the GDP in 2016-17. The first advance estimates on national income put out by the CSO recently disclose that investment as a per cent to GDP has further fallen to 26.4 per cent in 2017-18.

Apart from structural shocks like demonetisation of high value currencies on November 8, 2016, the disruptive changes to the sedate tax system by the unprepared rollout of the GST, the cost of credit to trade and industry was nowhere near affordable rates, with an appreciating rupee making imported inputs quite expensive for domestic output or to third-country export. Thus, the palpable elbow-room for the ease of doing business is stifling enough to force many a unit to produce far below rated capacity. It is small wonder that most of the companies had piled up huge debts on the borrowings they contracted from financial institutions, particularly public sector banks, leaving the balance sheets of companies and financial intermediaries in the red, making them plead for salvage operations to the authorities!

For the agricultural sector, which had been faced with back-to-back drought in the first two years of the Modi Government and a crash in produce price in the third year, throwing many farmers out of kilter, the government had woken up too late to address the historic grievances of the country's age-old avocation. With the services sector accounting for more than 60 per cent of the country's GDP, the authorities have begun to believe that the rest of the real sectors such as agriculture and industry grow on their own sans support or supportive public policies. While the farm sector constituents are primarily poor and do deserve unstinted support in times of trouble, as in times of good harvest to market their produce both within and in the overseas markets, the secondary sector, comprising manufacturing, had not been benefitted by any pragmatic policies other than slogans like Make in India, Stand up or Start-Up India that would not suffice to act as spurs to hit the ground running from early.

All told, with revenue uncertainty over GST rollout for the full-year staring the budget-makers, the politically savvy Jaitley must make do with whatever projections his officials provide him with. To superimpose the agrarian distress and seem to do something to de-stress this vital sector with a restive manufacturing sector making demands for sheer survival, the task on hand to present a please-all budget for being politically correct is not going to be facile. In any case, the room for an adventurous and reformist budget is now neither a compulsion nor an option, though the high growth trajectory for the Indian economy is predicated on how adroitly he plumps for either one!