February 5, 2018 12:26:43 am
The Union budget 2018 sounded more like an election manifesto. An election manifesto deals with promises for the future and at times, is also attributed as “election jumla”.
There are two aspects of Budget 2018; one that gives direct and immediate benefit to the “haves” and the other that promises “chandamama” to the “have-nots”. Under the garb of encouraging Micro Small and Medium Enterprises, irrespective of their size, these immediate beneficiaries amount to 99 per cent of the companies filing returns. As a result of these tax benefits, the government will end up foregoing Rs 7,000 crore worth of tax revenue.
Now, if we talk about the “have-nots” under healthcare, the National Health Protection Scheme promises five lakh insurance coverage to 50 crore people every year, which amounts to insurance to the value of 50 lakh crore per annum. The premium for the same, even at a minimal one per cent, could amount to Rs 50,000 crore per annum. This insurance scheme only covers hospitalisation and at present, only Rs 2,000 crore has been allocated for this. Given the current deficit of doctors, nurses, paramedical staff, medical colleges, supply of medicines, this scheme sounds like a 20-year programme, if you start it now.
The target of doubling farmers’ income by 2022 also amounts to a “jumla”. In the last four years, farmer distress has increased insurmountably. In real terms, the farmers’ income and agriculture productivity has come down. The Economic Survey 2017 points to the fact that the average Gross Value Added (GVA) in agriculture of the last four years is merely 1.9 per cent. Given this, if farmers’ incomes have to be doubled by 2022, then you need a growth rate of at least 12 per cent per annum in agriculture, which seems highly unachievable.
This budget is also highly inflationary as the fiscal deficit for 2017-2018, which was targeted at 3.2 per cent, has been surpassed and is at 3.5 per cent of the GDP. The fiscal deficit target for 2018, which was estimated at 3 per cent in the previous budget, has now been revised higher to 3.3 per cent. The finance minister has also changed the duty structure by increasing the cess on oil products, whereby the Centre has unjustifiably taken the share of the states in taxes. Given the social sector spending and the likelihood of crude oil prices going beyond $70, expect food and general inflation. Considering this inflationary budget, it would be impossible for the RBI to even think about cutting interest rates. On the contrary, interest rates will most likely go up, which will in turn reduce the export competitiveness of our domestic goods. Hence the motive of raising custom duties to protect and encourage domestic manufacturers will remain unfulfilled. The ambitious “Make in India” will fall flat, which in any case, has not yet taken off.
In order to finance the present social welfare schemes, the government will have to sell the household silver, which will depend on disinvestment of Air India and other public sector undertakings. It would also have to privatise the Railways, which in any case will not find any investor, as the Railways’ present operating ratio (calculated as operating expenses as a percentage of revenues) is well over 130 per cent (if required depreciation amount is allocated for renewal of old assets), an indication of near bankruptcy. Moreover, the allocation to the Railways in the current budget has been cut down by Rs 15,000 crore (from Rs 55,000 crore to Rs 40,000 crore).
The allocation to education and research is also disappointing. The Prime Minister’s Research Fellow Scheme (PMRF) to provide facilities to do PhDs in IITs and IIScs cannot be meaningful without the required infrastructure for research, especially technical, which requires billions of dollars. It is shocking that as per the Economic Survey 2017, public expenditure on research as a percentage of GDP has been constant at 0.6-0.7 per cent, as compared to China (2.1 per cent) and USA(2.8 per cent), whose economic bases are much larger. The government’s claim of creation of seven million formal jobs annually, made on the basis of data analysed from the Employees Provident Fund Organisation, is highly exaggerated.
This budget has been marketed as pro-farmer and pro-poor. In reality, it seeks to serve the richest one per cent of the population. The promises of the last four years — doubling farmer incomes, creation of jobs, elimination of black money, world-class infrastructure — have all fallen flat.
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