Dr. Santosh Kumar Mohapatra* in Cuttack, July 10, 2017 : Finance Minister Arun Jaitley presented budget just after 84 days of self-inflicted wounds of demonetization that derailed growth, destroyed jobs, pulverized economic activities, pushed economy in to recessionary phase apart from perpetrating humongous tragedy on masses.

It was expected that budget would be salve for the agony and pains of demonetization by enhancing spending, stimulating consumption, generating more employment and augmenting purchasing power and thereby give a huge push to domestic demand. But, Budget failed miserably to do any of it. Instead of providing fiscal stimulus to the economy, finance minister presented a contractionary budget, which may curtail demand and drag economy in to quagmire of recessionary phase.

CONTRACTIONARY IN NATURE

The budget is contractionary in the sense that as the hike in total expenditure is much less than the projected nominal GDP growth. The budget envisages nominal GDP growth of 11.75% (real GDP of 6.75% plus inflation of 5%).The gross expenditure as per the revised estimate for 2016-17 is Rs 20.14 lakh crore. In the current budget, it is estimated to be around Rs 21.46 lakh crore.

Therefore, the actual increase is just 6.55% as against projected nominal GDP growth of 11.75%. The total size of the budget has also come down from 13.4% of GDP last year (revised estimate-RE) to 12.7% of GDP this year as the GDP is estimated to be around Rs 1,68,47455 crore in 2017-18. In many countries, size of budget as percentage of GDP is double than that of India. If size of budget is not enhanced in tandem with rise of nominal GDP, the allocation in different sectors, ministries will not be up to expectation and growth will far from being inclusive.

The Budget is applauded by much of the media for adhering to “fiscal prudence” without taking recourse to “excessive populism”. But the fiscal deficit target has been achieved through expenditure reduction when there was imperative of providing fiscal stimulus. The FRBM committee recommended for departure up to 3.5% of the GDP when circumstances warrant.

But, the finance minister preferred to be more faithful to global finance capital. This is not fiscal prudence, rather fiscal fundamentalism. Because of which, the budget does not have the essential allocation of resources to various important sectors and as a result of which the purchasing power of people is going to be further dampened and eroded.

Despite snobbish claims of a massive push in infrastructure, there is a reduction in real terms as the capital expenditure of the government has fallen from 1.86 % of GDP (2016-17, revised estimate-RE) to 1.84% of GDP (2017-18, budgeted estimate- BE) and if capital expenditure of railways is ignored, it comes down further to 1.51% of GDP.

While there is a small increase in the share of total budgetary outlay going to health, the share going to school education and literacy has actually declined (2.2% in 2016-17, RE to 2.16% in 2017-18, BE). Similarly other major social sector projects like Sarva Shiksha Abhiyan, Mid-Day Meal Scheme, National Drinking Water Scheme, and National Old Age Pension Scheme have got sparse increases.

CHIMERA OF PRO-FARMERS AND PRO-POOR

Hardly anybody would quibble over the fact that rural India has been harshly impacted with the sluggish agricultural activities and other means of livelihood in the post-demonetization phase. There has been lot of propaganda that outlay in farmer’s welfare, rural development and other related schemes has been significantly enhanced in budget. But it is not true.

Total allocation given to rural sector along with agricultural and allied sector for 2017-18 fixed at Rs. 1,87,223 crore, which is 24% more from the preceding year. But it is merely only 11.5% increase over revised estimates (RE) of Rs 167,768 in 2016-17 which is even less than nominal GDP growth of 11.75 % envisaged in budget.

The Agricultural Ministry’s total allocation, both as percentage share of the total Union Budget and as a proportion of the GDP, shows a decline in this budget compared to 2016-17 (RE). The allocation for Department of Agriculture, Cooperation and Farmers’ Welfare has fallen from 1.98% per cent of total expenditure in 2016-17 (RE) to 1.95% of total budgetary outlay in 2017-18. The allocation for the Agriculture and Farmers’ Welfare Ministry has been fixed at Rs 51,026 crore as opposed to Rs 48,072 crore (RE) in 2016-17.

This is mere an enhancement of 6.14% over the previous year budget (RE), a percentage increase that is much lower than the percentage increase during 2016-17, which was 37% as actual allocation for 2015-16 was Rs 35092. What is disquieting is that interest subvention, which was earlier shown under the Finance Ministry, has been shown in Ministry of Agriculture since 2016-17 to show higher expenditure in agriculture and farmers welfare.

Total allocation for “Prime Minister Krishi Sinchayee Yojana (PMKSY) in this budget saw a decline to Rs 7,377 crore from actual spending reported in 2015-16, i.e. Rs 7,781 crore. Finance Minister proposes to increase the coverage of Fasal Bima Yojana from 30% of cropped area in 2016-17 to 40% in 2017-18 and 50% in 2018-19. Only a sum of Rs 9,000 crore provided in 2017-18, much less than the revised estimate of Rs 13,240 crores in 2016-17. Fertilizer subsidy, which is very vital for agriculture, has been reduced from Rs 73,000 crore in last year to Rs 70,000 in 2017-18.

Finance Minister makes a supercilious claim of a record allocation of Rs 48,000 crore for MGNREGS as against Budget provision of Rs 38,500 crores in 2016-17. But actual increase is merely Rs 501 crore (niggardly 1.1%) when compared with the revised estimate of Rs 47,499 crore for 2016-17. The allocation for Pradhan Mantri Gram Sadak Yojana is Rs 19,000 crore in 2017-18, same as in revised estimate for in 2016-17.

Like previous year, the proposal to double the income of farmers by 2022 sounds preposterous. Chasing the goal of doubling incomes lacks clarity as to whether it is nominal incomes or real incomes (that takes in to account inflation) that are being chased. In nominal terms, everything goes up in five years, everybody’s income doubles in about 7 years due to the impact of inflation. It is also unclear whether it is income from agriculture or that of agricultural households being targeted.

Agriculture will have to grow at 12 or 14% to realise such rise in earnings in real term. At present, the growth rates stand at a poor 1.2%, according to World Bank data. The ambition of improving the income security would mean addressing the agrarian crisis and would call for a more substantial intervention than the routine or adhoc allocations for various schemes under the ministry of agriculture. The budget allocations do not show enough provisioning for improving the incomes of farmers.

For many crops at the moment, the cost of production is higher than the MSP. The additional tax revenue generated through Krishi Kalyan Cess (KKC), which the tax payer contributes towards with the hope that there would be a comprehensive programme to make farming a viable occupation again, has not been utilised very effectively. The pompous claims of making provision of Rs 10 lakh crore credit for farmers’ as against Rs 9 lakh crore of sounds discordant especially when there is decline in credit off take.

Most of this credit goes to agribusinesses and to urban areas and is in no way addressing credit needs of poor, landless farmers and agricultural workers. Interest subvention is fixed at Rs 15,000 in 2017-18, just same as budget estimate of previous year. As tenant farmers and sharecroppers are excluded from bank loans, interest subvention will not help them. While loans of industrialists have been waived to the tune of crore of rupees and defaulters are allowed to leave country with impunity, no loan waiver benefit is available in this budget for farmers drowned in the quagmire of debt trap. This exposes BJP’s anti- farmers’ attitude. Farmers will continue languish as before unless the real cause of their distress is addressed including reversal of neo-liberal policy.

PRIVATISATION IS HIDDEN AGENDA

While Jaitly expressed concern for low tax-GDP ratio and India being a less tax compliant country, he did not take any step to address this perennial problem especially enhancing the tax-GDP ratio, which is one of the lowest in the world. He did not take any measure to recover the tax arrears amounting more than Rs 8 lakh crore.

There is propaganda is that rich are made to pay through surcharge to give others through reduction of income tax slab is misleading. Actually, maximum income tax rate was 97.57 % in 1973-74. But it has been reduced to 30% in order to give concession to rich/ higher income group. Income tax slab was not revised since 1997. There was imperative to reduce tax burden on salaried class in view of inflation and being honest taxpayers. Even reduction in slab from 10% to 5% will benefits higher income group more.

Resource mobilisation has been another failure. Once again, this year, excessive reliance for increasing revenue receipts is on higher excise duty on petroleum products. However, the total revenue receipts have come down from 9.4% of GDP in 2016-17 (RE) to 9% of GDP in (BE) of 2017-18.

Failing to tax the rich, Finance Minister has given a lethal push to privatise the public sector entities in budget. An all-time high target to collect an amount of Rs 72,500 crore by both partial and full privatisation of central public sectors has been envisaged. In order to realise such huge amount, the government shall resort to strategic sale and massive equity disinvestment of public sectors .The rail PSUs and public sector general insurance companies are already identified targets.

It appears the Modi government is desperate to hammer the last nail in the coffin of CPSUs. The NIPFP has recommended adoption of “a 10-year plan to divest at least 50% PSU assets. Further, too much reliance on disinvestment to raise resources is unwarranted as it transfer public assts in to the hands of private individuals and government loses in term of dividend as its share is decreased.

The budget does not address the banking woes, which is plagued by rise of NPA of public sector banks up to 12% of advances due to defaults by corporates with tacit support of government machinery. While banks need huge money for recapitalization, Jaitly has allocated only Rs 10,000 crore as against Rs 25,000 in previous years. Low recapitalization means, banks have to sell their shares to generate resources leading to their privatization.

Finance Minister Arun Jaitley announced scrapping of Foreign Investment Promotion Board to ease the inflow of Foreign Direct Investment. This appears imprudent when America is resorting to protectionism. Jaitley takes pride for an increase of 36% in FDI flow. But he did not tell: how much this contributed in increasing growth and job opportunities. Nothing, if FDI has increased by so much, then why growth is declining, jobs is destroyed.

FDI entry is made under two categories – automatic route and approval route. FDI is allowed under the automatic route without prior approval either of the Government or the Reserve Bank of India and are subject to only sectoral laws. FDI in activities not covered under the automatic route requires prior approval of the Government, which are considered by the Foreign Investment Promotion Board (FIPB), Department of Economic Affairs, and Ministry of Finance.

The FIPB is the designated institution, which considers the FDI proposals below Rs 5000 crore that require government approval. It also grants composite approvals involving foreign investment/ foreign technology. Above this amount, the Cabinet Committee on Economic Affairs is the approval authority. As most of the FDI proposals are below Rs 5000 crore, it is well understood that almost all FDI proposals are examined by the FIPB.

The automatic route stands for less restricted or more liberalized regulation. This announcement will ensure unfettered entry of FDI especially benefiting foreign single brand retail trading and multi-brand retail trading companies that are looking to invest in India. The hypocrisy is unbound, as same Modi who had vehemently opposed FDI especially in retail has now eased FDI rules.

CONCLUSION

This budget does not acknowledgement that the rate of growth of the economy is decelerating, people are worst sufferer due to demonetization and that there is imperative of expansionary fiscal policy. It does not takes in to account another element of uncertainty, that is, the expected increase in world prices of crude oil that could affect inflationary expectations.

By contrast, budget is described as a paradigm shift to clean politics. Finance Minister restricted the cash donation to political party to Rs 2000 as against previous amount of Rs 20,000 to establish that his government is serious in curbing corruption and black money.

This is just to hoodwink masses. Earlier one person was donating maximum Rs 20,000 in cash. Now, he will utilize 10 person’s name (each with Rs 2,000) to donate same amount of Rs 20,000. The electoral bond shall only be a conduit for clandestine corporate funding, as the details of the donor shall be kept confidential by the banks. This is sheer hypocrisy.

This is rubbing salt in to wounds of the people who have suffered due to demonetization. What is perplexing is that the budget does not address destruction of jobs and erosion of purchasing power and demand. Instead of enhancing purchasing power of people, Finance Minister did his best to augment the indirect taxes to reduce the purchasing power of common people including middle class, thereby, dampening demand. The budget inflicts further burden on the people and exacerbates unemployment and recessionary tendencies.

(*The author is an Odisha based Columnist and Economist)