Nirmala Sitharaman’s maiden Budget belied a few expectations, and not in the positive way. It was a workman-like Budget that contained no ‘big bang’ reform measures. The much anticipated stimulus package was glaring by its absence.
Analysts and economists clamouring for a strong dose of stimulus, thanks to the tepid investment climate and lukewarm consumption pattern, were left bitterly disappointed. Their argument was that the GDP growth rate, which was at an abysmally low level of 5.8 per cent in the last quarter of the previous fiscal, was crying out for bold measures in the Budget to revive growth.
The Budget erred on the fiscally conservative side by targeting to keep the fiscal deficit at 3.3 per cent. Some have argued that the government did not have enough fiscal space to manoeuvre. But the government was perhaps more mindful of the experience of the UPA II government on this front.
A repeat of 2014
The then Finance Minister Pranab Mukherjee injected a massive stimulus dose into the economy in 2009, soon after the UPA was re-elected, to counter the growth slump that followed the 2008 global financial crash. The stimulus then was necessary as most countries, including China and the western nations, went in for massive fiscal stimulus packages and counter-cyclical policies to stem the growth slide.
Where the UPA II government erred was in not shutting the fiscal tap at the appropriate time. This led to massive pressure on the fisc and runaway inflation. Global factors such as rising crude oil prices added to the Indian economy’s woes with the current account deficit going through the roof. These factors played a major part in the UPA II drubbing in the 2014 elections.
Sitharaman’s Budget is, in many ways, similar to Arun Jaitley’s Budget in 2014 in its lack of any major reform moves. As indicated by the Economic Survey , the Budget too has left it to the private sector to do the heavy lifting of reviving the economy. Given how sluggish private investment has been in the last five years, and the prevailing uncertainty in the global economy, whether private investment will take the bait remains to be seen, though the picture looks bleak at the moment.
Corporate tax, banking
The Finance Minister’s cutting of corporate taxes from 30 per cent to 25 per cent for companies in the ₹250-400 crore turnover bracket, which form more than 90 per cent of the companies, was the only ‘sop’ for the corporate sector. Though most industry chambers were gushing in their praise for the Budget, at least one leading industrialist, Adi Godrej, expressed his disappointment openly.
The most important takeaway from the Budget was the package for the ailing banking sector. The ₹70,000-crore recapitalisation of PSU banks is a welcome step that will help boost bank lending, especially to the MSME sector. The one-time guarantee by the Centre to PSU banks for purchasing assets of highly rated NBFCs should also ease the liquidity pressure that sector has been facing after the IL&FS default crisis.
Another sector that has been left high and dry is agriculture. The only major announcement here was the plan to create 10,000 farmers producer organisations in the next five years. The thinking in the government was perhaps that the PM-Kisan scheme, announced in the interim Budget in February, was enough to keep the farm crisis at bay for the time being. More surprisingly, the Budget was silent on reforming the marketing structure in the farm sector, given this government’s emphasis on E-NAM in the past.
The return to hiking Customs duties on 37 products to boost domestic manufacturing has also raised eyebrows. One, it could raise the prices of these products in the domestic markets and, two, it is likely to be frowned upon globally, especially at a time when the US President has been breathing down India’s neck on high tariffs.
Nothing new
Another Budget announcement that has caused concern is the move to tap external funds for borrowings. The government’s rationale for this is to keep domestic interest rates down, but this option will also make the economy vulnerable to external pressures.
This Budget disappointed many for not offering any bold measures to revive the economy. This was not surprising. The Budget had, in many ways, the stamp of Prime Minister Narendra Modi. Though Modi’s election slogan in 2014 was ‘minimum government, maximum governance’, these past five years have shown that his government was anything but that. The NDA 1.0 tenure conclusively proved that Modi is no radical conservative reformer in the mould of a Margaret Thatcher or Ronald Reagan. So it’s hardly surprising that this Budget turned out to be a workman-like exercise.