It is just as well that the last day of February will fall on a Monday when the budget will be presented. The commentators can pause, take several deep breaths today, and resume their breathless commentary when the dawn breaks tomorrow!
The third budget of any government is a crucial milestone. If the economy is on a roll, it is a time for consolidation; if the economy is stuck, it is the last opportunity to get it unstuck.
The state of the economy is there for all to see.
> Growth is flat — some will say it is overstated — at 7.4 to 7.6 per cent.
> There is acute distress in rural India.
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> There is no visible evidence of job creation.
> Two of the four engines of growth — private investment and exports — are sputtering.
> Several projects are stranded or remain stalled.
> The inflation indices are confusing: While WPI remains negative, CPI has inched upwards to 5.7 per cent in January 2016, leaving both the producers and the consumers unhappy.
No two years will be alike and there are no text book solutions to the problems faced by the economy. A government must draw upon its imagination and reserves of courage to deal with the economic situation.
Mr Narendra Modi’s government was voted to office on the promise of rapid and sustained development. If the government had delivered on its promises, everyone should be a little happier today than what he or she was in May 2014. I am afraid I have not come across anyone who is actually happier. On the contrary, everyone, in different degrees, is sulking or sullen. That includes the silent but observant members (especially the seniors) of the ruling establishment who have correctly sensed that there is no wind behind the sails of the government.
The reason is that the government had over-promised but has under-performed. The party (BJP) and its supporters (RSS and its affiliates) did not help the government: they changed the narrative from development to intolerance and from cooperation to confrontation. So, instead of the rise of the economy, we have seen the rise of intolerance. Instead of all sections of the people warming to the government, we find that important sections like farmers, Dalits, tribals, Muslims and students have become apprehensive and insecure.
What should we expect from from the budget for 2016-17?
I expect that the Finance Minister will comfortably achieve the fiscal deficit target of 3.9 per cent in the current year. He got a bonanza from low oil prices of approximately Rs 1,40,000 crore that he will use to fill three yawning gaps — shortfall in tax revenues, shortfall in non-tax revenues (especially disinvestment) and the increase in the fiscal deficit. The question is, will he stick to his own fiscal consolidation path and set a target of 3.5 per cent for 2016-17? If he does, we can raise one cheer; if he doesn’t, the negative marking will begin.
Distress in rural India
Secondly, at the top of my ‘to-do’ list is the acute distress in rural India. There has been a drought or drought-like condition for three years, but the government looked the other way and cut nearly Rs 75,000 crore funds to critical programmes that would have put money into the rural economy. Besides, the government was lukewarm to MGNREGA and did not give reasonable increases in minimum support prices. Rural wages have remained practically stagnant. All these explain the poor demand in the rural economy and the grave unrest among farmers, farm workers and Dalits. We will watch how the budget addresses these issues.
Thirdly, we should look to how the government has balanced its books. Has the government set unrealistic revenue targets or underestimated expenditure?
Fourthly, we should look out for the revised estimates (2015-16) and the budget estimates (2016-17) against key heads of expenditure, particularly the social sector programmes. Will the government meet its expenditure targets in 2015-16 and provide adequate funds for 2016-17?
Fifthly, we will test the budget on how it addresses the problems of sluggish private investment and sputtering exports. A car cannot run on two wheels. So far, the government has remained clueless on the solutions to the twin issues.
Beyond the numbers
Sixthly, what will be the legislative agenda in 2016-17? Is the government determined to pass the Goods and Services Tax Bills and will it accommodate the legitimate views of the Opposition parties? Will the government repeal the retrospective clause in taxation of capital gains? Will the government bring back to the table the Direct Taxes Code and the recommendations of the Financial Sector Legislative Reforms Commission?
Seventhly, will the budget follow the pattern of the last two budgets and make meaningless announcements of Rs 50 crore or Rs 100 crore each on a clutch of sundry “initiatives”?
Eighthly, will the government use its absolute majority in the Lok Sabha (not available to any government in the last 30 years) to implement bold structural reforms in the economy, in the regulatory architecture, and in the administrative machinery? I believe that a party that
has, on its own, a strength of 282 cannot waste the opportunity or duck the responsibility of making deep and broad structural reforms.
And, finally, we should be curious and ask who wrote the budget speech! My best wishes to the Finance Minister!