Former finance minister P Chidambaram, who feels the Union Budget for 2017-18 is “aimless and directionless”, says the government should immediately cut indirect taxes across the board to revive the sagging economy. Demonetisation, he said, damaged India’s GDP growth in 2016-17 and fears that its shadow will fall on 2017-18 and some parts of 2018-19. He also said lack of creation of jobs for the youth is a powder keg and a small spark can lead to a large explosion. Resentment may not be visible but it can be a “silent killer”. “What is the overarching goal of this budget? It is aimless and directionless,” said Chidambaram, who has presented nine Union Budgets in a span of nearly two decades. “Sometimes, you chase growth. Sometimes, you chase financial and monetary stability. Sometimes, the goal is boosting growth in a slowing economy,” he told media.
Chidambaram said Finance Minister Arun Jaitley missed an opportunity at reviving the economy hit by demonetisation. “That (cutting indirect taxes) is a tried and tested and proven method of boosting economy. He could have easily cut between 4-8 per cent (tax) across the board. “It is only up to GST time and when GST comes, GST will take over. He had a window of about 8 months to cut indirect taxes. It would come into force from 1st of February and I don’t think GST is going to come before October 1. So, he had eight full months to give a boost to economy by cutting indirect taxes,” he said.
Asked if the finance minister should still cut indirect taxes now that the Budget has been presented, he said, “Yes, he should. Even now it is not too late.” Chidambaram said slashing indirect taxes would push consumption and in turn perk up production.
“If you cut indirect taxes by 4-8 per cent, there is going to be a revenue loss, I am not denying that. But just imagine the signal that would have gone to both producers and consumers. And if consumption rises much above the level of the cut, some of the cut will be made up. The idea is to boost consumption which in turn will boost production,” he said.
Chidambaram disputed the government’s contention that the Budget has stepped up investment. “It is not correct. Total expenditure of the government as a proportion of GDP has fallen. Look at the number for the three years 2015-16, 2016-17 Revised Estimate and 2017-18 Budget Estimate. Total expenditure was 13.09 (per cent of GDP), increased to 13.36, but falls to 12.74 in BE of next year. That is a decline of 0.62 per cent and 0.62 per cent of the GDP represents about Rs 90,000 crore.
“Why did you cut back expenditure as a proportion of GDP by about Rs 90,000 crore that could have been used for enhancing spending on infrastructure as well as on social welfare schemes… expenditure in several social welfare schemes as proportion of GDP has fallen. You don’t look at absolute number, absolute number will look larger but as proportion of GDP, it has fallen,” he said.
Chidamabram further said the government should not have reduced expenditure as percentage of GDP and it should have spent on projects and schemes that stimulate the economy. On demonetisation, he said, it is now universally accepted it has damaged GDP in the current year – from 7.6 per cent in 2015-16 to 6.9 per cent as RBI says or 6.75 per cent as Economic Survey says or 6.6 per cent as IMF says or 6.0 per cent as CMIE says. “It is now common ground that the GDP has been affected. The damage is one percentage or more. This will not stop with 2016-17. The shadow of demonetisation will fall on 2018-19 also. 2017-18 definitely and part of 2018-19,” he said. He said 75 per cent of all small, micro and medium enterprises have shut down post junking of 500 and 1,000 rupee notes.
“And if you shut down an industry or business, revival is not easy. He has to go through several hoops again. From going and stabilising credit with banks, beginning with that he has to go through hoops all over again,” Chidambaram said. Jaitley, he said, did not make any revised estimate of direct tax collection for 2016-17 and has kept both personal income tax and corporate tax receipts at the same level to the last digit of the budgetary estimates.
On indirect taxes, the finance minister made an additional gain of Rs 16,000 crore in service tax, but lost Rs 13,000 crore in Customs revenue, Chidambaram said, adding that the only gain made was in excise duty of Rs 69,000 crore. “Which means he has sought to tax the people of India on diesel and petroleum to get this additional (about) Rs 70,000 crore,” he said.
Talking of the present global situation, he said most countries of the world have slowed down or are in a recession. Even the mighty Chinese economy has slowed. “There are only four engines of growth – one is government expenditure, other is exports, third is private investment and fourth is private consumption. “Of the four engines, three engines are not firing at all. The fourth engine of private consumption suffered a serious damage after demonetisation. Which is the engine you can rev up today? The only engine you can rev up today is government expenditure. The other three engines are sputtering. Therefore, I advocate that you must step up government expenditure,” he said.