Buttressing the poor?

The Finance Minister of India released the Economic Survey 2022-23 and the Union Budget 2023-24 in a week when the country was passing through the most turbulent phase of the Indian economy since November 2016. On November 8 that year, the Indian Prime Minister announced the demonetisation of all Rs 500 and Rs 1,000 banknotes of the Mahatma Gandhi series. The bloodbath in the shares of India’s largest corporate house, Adani Group, during the last ten odd days, has cost India its spot among the world’s five biggest equity markets, as its market capitalisation dropped to USD 3.2 trillion on February 1 — the day when the Budget was placed before the Indian Parliament, reports ‘Indiatimes’.

Adani share rout began in the last week of January after a US-based activist investment firm, Hindenburg Research, released a report on January 24, accusing Gautam Adani, the Chairman of Adani Group, of “brazen” stock manipulation and accounting fraud worth USD 218 billion. The activist firm accused India’s richest man of pulling the ‘Largest Con in Corporate History’. On the very day when the Budget was tabled, Adani Group decided to withdraw a fully subscribed share sale of Adani Enterprises Ltd.’s Rs 20,000 crore follow-on public offer (FPO) that managed to get investors on the last day of the share close on January 31. The decision to withdraw the controversial FPO was taken primarily because of volatility in the market. According to a report in ‘The Hindu’, by then, Adani group companies’ stocks lost over USD 90 billion in value since Hindenburg Research made damning allegations against the group. On Wednesday morning, Credit Suisse’s lending arm assigned zero lending value to bonds issued by Adani companies and, on the following day, the wealth investment arm of Citigroup announced that it has stopped accepting Adani Group’s securities as collateral for giving out margin loans, signalling a trend in global lending firms maintaining their distance from Adani Group securities.

Last week was also politically very significant for India, as Congress’s Bharat Jodo Yatra, which began at India’s southern tip of Kanyakumari, culminated in Srinagar on Monday, January 30 – the day when Mahatma Gandhi was assassinated. The Bharat Jodo Yatra, which continued for 135 days — covering a distance of 3,800 km from south to north India and passing through 14 states — aimed to spread the message of love and national unity, reported ‘Hindustan Times’. On Thursday (February 2), the Congress and other opposition parties demanded a Joint Parliamentary Committee or a Supreme Court-monitored probe into the Adani Group crisis.

Adani group’s crisis is not restricted to the Indian economy. It will have a serious fallout on India’s relations with foreign countries, especially with Australia, Bangladesh, Sri Lanka and Israel where the group has invested in key projects like coal mines, electricity supply, green energy and port infrastructure. Amid a bloodbath in the share market, Gautam Adani met Israel’s Prime Minister Benjamin Netanyahu on Tuesday for the official handover of the Haifa Port to the Adani Group. Last year, a consortium of Adani Ports and Special Economic Zone (APSEZ) and Israel’s Gadot Group won the tender to privatise the Port of Haifa for a staggering USD 1.18 billion. As per a report by ‘Moneycontrol’, the Adani Group holds a 70 per cent stake in the consortium. It is expected that the acquisition would turn the coastal city into an exciting Mediterranean hub.

Though less than two per cent of Indian citizens directly participate in the stock market, millions of people are getting exposed to the vagaries of the stock market due to the increasing involvement of public sector banks and insurance companies in the equity and bond markets. Moreover, huge amounts of risky loans provided to large conglomerates, without proper risk assessment of the debtors, have made the Indian banking sector vulnerable. It is reported that the State Bank of India, the country’s largest financier, has given loans of as much as USD 2.6 billion to companies in the Adani conglomerate. SBI’s exposure includes USD 200 million from its overseas units. Few other banks like the Bank of Baroda also have huge exposure. On February 2, the Reserve Bank of India, the nation’s banking regulator, asked lenders for details of their exposure to the conglomerate following a rout in group companies’ stock prices, ‘Bloomberg’ reported. However, the Security and Exchange Board of India (SEBI) has failed to initiate any proper investigation against Adani Group even after ten days of serious allegations by Hindenburg Research. In 2021, the government said to the Parliament that SEBI was looking at some “compliance” issues at Adani and that the Directorate of Revenue Intelligence was “investigating certain entities” of the Adani group. However, nothing has come of this so far, reported ‘National Herald’.

On February 2, the Congress president and leader of the opposition in Rajya Sabha, Mallikarjun Kharge, sent a formal letter to the chairman of the upper house, asking for the suspension of regular business to “discuss the issue of investment by LIC, public sector banks and financial institutions in companies losing market value, and endangering the hard-earned savings of crores of Indians.” Against this current financial turmoil, we have to analyse the key issues of the Union Budget.

Key issues

It is expected that India will witness a GDP growth of 6-6.8 per cent in 2023-24, depending on the trajectory of economic and political developments globally. Bearing in mind the gloomy forecast about the advanced economies, it might be difficult to achieve the targeted growth. In such a situation, the stated aim of restricting the fiscal deficit to 5.9 per cent of the GDP during 2023-24 looks very challenging to achieve.

It is claimed that to upgrade the virtuous cycle of investment and job creation, the Budget took lead in steeply increasing the capital expenditure outlay by 37.4 per cent in BE 2023-24 to a whopping Rs 10 lakh crore over Rs 7.28 lakh crore in RE 2022-23. This amount is more than double of what was allocated in 2020-21.

The Finance Minister announced Rs 35,000 crore for priority capital investment towards energy transition, net-zero objectives and energy security by the Ministry of Petroleum and Natural Gas. Underlining a commitment to accelerate the Indian economy’s transition to one powered by green energy, Union Finance Minister Nirmala Sitharaman, in her Budget speech on Wednesday, mentioned a slew of schemes aimed at promoting clean energy and sustainable living. Customs duty has been waived on capital goods and machinery for lithium-ion battery manufacturing. Last month, the Union cabinet also approved an initial outlay of Rs 19,744 crore for the National Green Hydrogen Mission.

It is feared that the huge rise in capital expenditure by the government has been done at the cost of welfare schemes meant for the poor, and it is primarily aimed at bailing out a major conglomerate whose business investments are “centred on green hydrogen ecosystem, airport management, roads, data centre, and primary industries like copper and petrochemical.”

The Budget allocated Rs 60,000 crore for the MGNREGS, which is 21.66 per cent lower than the budgetary estimate of Rs 73,000 crore in FY 2022-2023. The reduction is sharper when compared with the revised MGNREGS estimate of Rs 89,400 crore in the previous financial year, reported ‘The Indian Express’.

The overall allocation for the agriculture sector saw a marginal increase of 4.7 per cent – from Rs 11,02,54.53 crore in the revised estimate (RE) of FY 2022-23 to Rs 11,55,31.79 crore in FY 2023-24. Including the department of agricultural research and education, the overall allocation to the sector was Rs 12,50,35.79 crore, against the 2022-23 revised estimate of Rs 11,89,13.42 crore. But the allocation has been reduced by almost seven per cent compared to what was proposed in the 2022-23 Budget. The share of agriculture in the overall budget has also fallen sharply in the Budget for FY 2023-24. While the sector got 3.36 per cent of the total allocation last year, this time it is just 2.7 per cent of the total Budget, reported ‘DownToEarth’.

The planned allocation for the rural development for 2023-24 is Rs 2,38,204 crore, down from last year’s revised estimate of Rs 2,43,417 crore.

The planned expenditure on food subsidies, too, has been reduced – a pattern that has been seen over the last few years. The budget estimate for this year (Rs 1,97,350 crore) is much lower than the revised estimate for last year (Rs 2,87,194 crore).

Though the planned expenditure on PM Poshan, which covers the midday meal scheme in government schools, has increased (Rs 11,600 crore) compared to last year’s budget estimate (Rs 10, 234 crore), it is in fact more than Rs 1,000 crore lower than last year’s revised estimate of Rs 12,800 crore.

The allocation for PM Kisan has broadly remained the same, largely because the scheme involves the disbursal of a fixed amount of money to a mostly unchanging number of farmers. As per a report by ‘The Wire’, this year’s budget estimate matches last year’s revised estimate exactly, at Rs 60,000 crore, but is Rs 8,000 crore less than last year’s budget estimate.

More direct tax

In FY 2023-24, the budgeted tax receipt contributes 58 per cent of the total revenue receipt of the government, and GST’s share is 29.3 per cent of the total tax receipt. The indirect tax — which consists of GST, excise, and customs duty — contributes 48.27 per cent of the total tax revenue, which is a very high share. ‘Times of India’ reported that the 2022-23 budget estimate of revenue earned from GST was Rs 7.8 lakh crore compared to Rs 7.2 lakh crore from corporation tax and Rs 7 lakh crore from income tax. In 2023-24 BE, the share of GST, corporation tax and income tax are 17 per cent, 15 per cent and 15 per cent respectively. The share of GST, paid by everyone, including a beggar, is higher compared to the tax paid by corporates and high-income individuals. While a slab for income tax, paid by 3.3 per cent of the individuals of this nation, has been simplified, no proposal for wealth tax, badly needed to reduce income inequality, has been put in the Budget proposal.

It may be recalled that in 2015, the wealth tax was abolished in India. In a nation where the number of billionaires is growing, the government only managed to collect a pitiful Rs 1,008 crore in wealth tax during FY 2013-14, demonstrating how high the expense of collecting the tax was in comparison to its low yield. Additionally, wealth tax is not a significant component of India’s collection of direct taxes (Rs 788.67 crore and Rs 844.12 crore were collected as wealth tax in 2011-12 and 2012-13, respectively). The finance minister said in his budget statement that the government could rise up to Rs 9,000 crore in a fiscal year by eliminating the wealth tax and replacing it with an additional levy. Thus, the wealth tax was abolished from FY 2015-16.

Data from diverse sources show high unemployment rates during May-July 2022 for the youth: 28.3 per cent in the 15-24 age group and an even higher 43.3 per cent for the 20-24 age group. The likelihood of a global recession and the related layoffs being announced by corporate giants will make the situation worse. The recent economic growth experienced in India, especially in the post-Covid recovery phase, has largely been jobless in nature and can further deepen both income and wealth inequalities. In such a situation, Jyotsna Jha, head of the Centre for Budget and Policy Studies, Bangalore, suggested the reintroduction of wealth tax to reduce income inequality and create jobs through increased government expenditure in priority sectors.

Oxfam India’s report on inequality, released in January 2023, finds that just five per cent of Indians own more than 60 per cent of the country’s wealth while the bottom 50 per cent of the population possess only three per cent of the wealth. The report titled ‘Survival of the Richest’ further said that if India’s billionaires are taxed once at two per cent on their entire wealth, it would support the requirement of Rs 40,423 crore for the nutrition of malnourished in the country for the next three years. Unfortunately, the government has ignored all the recommendations for taxing wealthy Indians to reduce the rising inequality in the country. India, where only five per cent of super-rich people grab more than 60 per cent of the country’s wealth, and the bottom 50 per cent own only three per cent, is a perfect example of a non-inclusive economy.

Conclusion

In a report titled ‘Governance and Development’, the World Bank (1992) set out its definition of good governance as “the manner in which power is exercised in the management of a country’s economic and social resources for development”. It assures that corruption is minimised, the views of minorities are taken into account and that the voices of the most vulnerable in society are heard in decision-making. It is also responsive to the present and future needs of society. Good governance has eight major characteristics, namely, participatory, consensus-oriented, accountable, transparent, responsive, effective and efficient, equitable and inclusive and law-abiding.

Economic Surveys and Budgets are the first two major steps of macro-economic planning of any government. Though Prime Minister Narendra Modi praised the Budget saying that it would fulfil the “dreams of the poor, villagers, farmers and middle class”, the essential prerequisite for the implementation of any such economic plan is good governance, which is lacking presently.

A cursory look at various indicators shows, between 2014 and 2022, India has slid in the ranking on major socio-economic global indexes. For example, during these eight years, India’s ranking has deteriorated in all the development parameters like Human Development Index (130 to 132), Health and Survival Index (85 to 186), Human Freedom Index (106 to 150), World Happiness Index (111 to 139), Environment Protection Index (155 to 180), Gender Equality Index (114 to 135), Democracy Index (33 to 53), Press Freedom Index (140 to 150). In 2022, India ranked 85th among 180 countries in Transparency International’s Corruption Perception Index. These are examples of ‘bad governance’.

Unless good governance principles are followed in the true sense of the term, no economic planning will deliver the desired result, and hundreds of corrupt cronies will appear to pull down the nation, further, to the bottom of the development ladder.

Views expressed are personal