Brace yourself for an economy that will grow at an unsatisfactory rate in 2020-21

I turned to the Economic Survey. This year it has a new helmsman, Mr K V Subramanian. He seems to love Tamil verse as much as economics. The central theme is that wealth-creation is good and wealth-creators must be respected. It is an idea that is no longer novel or controversial. The sole challenging chapter in the Survey is the one on how government intervention in markets hurts more than it helps but, the next day, the Finance Minister royally ignored the advice! She also ignored all other recommendations on structural reforms.

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Let us now look at Budget 2020-21. I intend to assess the Budget — numbers, speech and proposals — under three heads: marksmanship, underlying philosophy and reforms.

Poor Marksmanship

So many things had been done, under pressure, after the last Budget was presented in July 2019, it is unfair to hold the FM to the budget estimates (BE) of 2019-20. Yet, it must be recorded that she failed on a number of heads:

*Against a projected growth of GDP of 12 per cent (in nominal terms), the GDP will grow by only 8.5 per cent in 2019-20. The estimate for 2020-21 is 10 per cent.

*Against a BE of 3.3 per cent, the fiscal deficit will be 3.8 per cent in 2019-20 and projected to be 3.5 per cent in 2020-21.

*Against an estimated net tax revenue collection of Rs 16,49,582 crore, the government will be able to collect only Rs 15,04,587 crore before the end of March 2020.

*Against a disinvestment target of Rs 1,05,000 crore, the exercise will yield only Rs 65,000 crore this financial year.

*Against the intent to incur a total expenditure of Rs 27,86,349 crore in 2019-20, the government will spend only Rs 26,98,552 crore despite additional borrowing of Rs 63,086 crore.

No underlying philosophy

It is a matter of grave doubt if the BJP government has an underlying economic philosophy at all. One has to glean its philosophy from the numerous acronyms that were thrown at the people in the last six years. Basically, their guiding principles appear to be self-reliance, protectionism, control, bias in favour of traders (as against producers and consumers), aggressive taxation and faith in government expenditure.

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Did Budget 2020-21 signal a change in the thinking of the government? The answer is ‘No’. In fact, the FM did not spell out her government’s thoughts on the macro-economic crisis faced by the country. Nor did she say if her government thought the slump was due to structural factors or cyclical factors. It appears that the government continues to be in denial; the government is in denial that the economy is demand-constrained and investment-starved. Being in denial, the government has refused to look at serious reform measures or propose solutions to the twin challenges.

The government’s idea of ‘reforms’ is to give small dollops of tax relief to tax payers. It was the corporate sector a few months ago; in this Budget, relief of Rs 40,000 crore has been given to personal income tax payers. The FM also yielded to the pressure of the corporates and scrapped the Dividend Distribution Tax. There is no gainsaying the fact that DDT was an efficient tax and stopped all evasion of tax on dividend income. I am certain there will be loss of revenue on abolition of DDT.

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In the bargain, the FM has introduced two tax regimes (one with exemptions and one without exemptions) and complicated the personal income tax structure with multiple rates — the same mistake the government made when it introduced GST.

Giving up on reforms

The FM outlined three themes and under each theme there were several segments and many programmes. For example, under the theme Aspirational India, she identified three segments, and under each segment she announced many programmes. In the same vein, she devoted nearly an hour to elaborate on the other two themes — Economic Development of All and Caring Society. When she was done, I lost count of the number of themes, segments and programmes. Listening to the speech and reading the text later, I did not find anything that would amount to a structural reform in any sector. I wonder what happened to the labours of the Chief Economic Adviser.

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On the other hand, I remember the claims that the FM made with a straight face:

1. We have lifted 271 million people out of poverty during the period 2006-2016.

2. We will double the farmer’s income by 2022.

3. Swachh Bharat is a great success and the whole country is Open Defecation Free.

4. We have taken electricity to every home.

5. We will make India a $5 trillion economy by 2024 (although the ES has stealthily pushed the deadline to 2025).

From farm sector to personal finance, here’s The Indian Express’ full coverage of Budget 2020

The take-away from the Budget speech and the Budget numbers is that the BJP has given up on reviving the economy or accelerating the growth rate or promoting private investment or increasing efficiency or creating jobs or winning a greater share of world trade.

So, brace yourself for an economy that will limp along at an unsatisfactory growth rate in 2020-21. I know you did not deserve it but, I am afraid, that is what you got yesterday.

This article first appeared in the print edition on February 2, 2020 under the title ‘Does the Finance Minister know her onions?’.

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