Vacillating solutions

If the revised budget estimates for 2019-20 are way behind their original targets, it could be wrong to aspire that the first full year union budget under the second term of the Modi government would achieve any economic miracle by radically pushing up economic growth, creating new employment, generating income and savings and inducing large investments in infrastructure, manufacturing and services. The so-called aspirational budget is hardly inspiring except probably for foreign direct investors in new projects.

The worst part of the budget is the tax options placed before lower-middle-class taxpayers to choose between new slabs by forgoing exemptions and sticking to the existing system that offers certain exemptions intended to boost investments and thrifts. It is the most wasteful and confusing exercise in the budget that helps neither the common man nor the government. Ironically, the wealthier sections among the taxpayers have been mostly spared. Senior citizens and pensioners, who are generally forced to spend over 50 per cent of their annual income on medical treatment and healthcare needs, receive no tax relief from the government.

The 2020-21 budget provisions serve a big blow to stock market investors at a time when the return on investments in fixed deposits with banks and business corporations has hit the bottom after the successive RBI rate cuts, ignoring the growing inflation level through the year of 2019. The dividend income has been taxed. For instance, extra tax liability for Rs 10 lakh dividend and annual income of above Rs 50 lakh could be as much as Rs 3.4 lakh. It is no wonder that the post-budget stock market, which showed a big growth through last year even ignoring the poor performance of the economy, immediately expressed a strong negative response to the budget. The Sensex recorded its biggest budget-day slide – 988 points. Investors lost Rs 3.5 lakh crore, the most on a budget day in history. The reason for the sudden shift of tax burden on dividends from companies to individuals is inexplicable. It is negative for both individuals and promoters.

The laborious budgeting exercise and an extra-long speech by the finance minister pleased none, except probably some hardworking bureaucrats and the government. Prime Minister Narendra Modi said, "We are a government that trusts its citizens." But, will those citizens, affected by the repeated withdrawal of subsidies, low return on savings, fewer new jobs and high inflation, still trust the government after the new budget? The government's total plan or capital expenditure for the year is still not quite clear. The much-touted 'Make-in-India' programme has clearly failed to achieve the desired goal. It has now been reduced to the 'Assemble-in-India' programme. Interestingly, the government's concern for the country's security does not get reflected on its defence spending and manufacturing.

The defence sector practically gets no budget boost. The next year's Rs 3.37 lakh crore defence budget is just around 1.5 per cent of the country's GDP projected for 2020-21. This is the lowest figure since the country's humiliating war with China in 1962.

The lacklustre government performance during the current financial year has so far proved all key budget estimates wrong. It has badly failed in meeting the public sector (PSE) disinvestment target as well as overall revenue and expenditure targets. The economic growth had substantially slowed down till the last quarter. The poor budget management has led to the overshooting of the targeted fiscal deficit of 3.3 per cent of GDP for 2019-20 to 3.8 per cent. However, the de facto fiscal deficit, for all practical purposes, may go well over four per cent if borrowings through alternate channels are taken into account. This certainly indicates a genuine sense of the fiscal stress that the government is facing for the present.

Although the 2020-21 Budget has been built on the aspiration of 10 per cent growth of nominal GDP to nearly Rs 225 lakh crore and gross tax collection growth by 12 per cent, the current economic indicators do not suggest they are easily achievable. The shortfall of the current financial year's disinvestment target is brought forward to the next fiscal to pump it up to Rs 2.1 lakh crore. The government had originally targeted to raise Rs 1.05 lakh crore from PSE disinvestments in 2019-20. It was subsequently revised down to Rs 65,000 crore. The next year's big disinvestment target includes Rs 90,000 crore from stake sale in state-run banks and financial institutions, including Life Insurance Corporation of India. The finance minister has expressed the intention to sell balance government holding in IDBI Bank to private, retail and institutional investors through the stock exchange. Paradoxically, public sector enterprises (PSEs) continue to be the main source of the government's capital expenditure. In the next fiscal, about 62 per cent of the projected capital expenditure of nearly Rs 11 lakh crore is slated to come from the internal resources of those PSEs and their borrowings.

Mixing economics with politics is not always productive and desirable. The national or state government budgets should read more like a simple and easily intelligible statement of expenditure, income and deficit if any, and the mode of financing such deficit. The revenue side, largely comprising taxes, impacts citizens mostly during the financial year. Citizens want a stable taxation policy and its efficient execution. Annual national budgets need not meaninglessly tinker with direct tax slabs and rates for the majority of taxpayers belonging to the lower-middle-income group. The government would do well to reorganise its departments to compress their size and strength to vastly save or generate resources to spend on new or existing projects to help grow the economy and create jobs. People in no other country in the world are as concerned about their national budget as they are in India. Unfortunately, political parties in power refuse to acknowledge this.

Views expressed are strictly personal