Hyderabad: Finance Minister Nirmala Sitharaman should have admitted that the Indian economy was in a crisis, and then explained how she planned to get us out of it.
There are only two ways to deal with an economic slowdown such as ours. One is through consumption; the second is through investment. This Budget adopted the second way, and in my view, it was the right way.
The first way, of consumption, would put money in people’s hands through bank transfers. They will spend the money, consumer goods, and the increased demand will get the factories running, leading to more jobs, more spending; and the virtuous circle will restore growth in the economy.
The second way is of investment; investment brings jobs; jobs put money in peoples’ hands; they spend and consume goods; factories begin to run, leading to more jobs, and the same virtuous cycle gets us out of the slow down.
I prefer the second way because it creates assets. This Budget promises to invest in roads, waterways, pipelines for drinking water, housing, hospitals, etc – a total of Rs 103 lakh crores investment in infrastructure.
An opportunity wasted
Finance Minister Nirmala Sitharaman would have done herself favour, however, by admitting at the outset that the economy was in a crisis, and then explaining how she planned to get us out of it.
She has budgeted many fine job-creating initiatives and she would have lifted our spirits had she given even a very rough ballpark calculation of the direct and indirect jobs that these initiatives would create.
Although the Budget is not the only occasion to announce reforms, Sitharaman wasted a great opportunity.
Reforms take place precisely when there is a crisis, the public is more accepting of the short-term pain that reforms bring.
For example, she reminded us of a major agricultural reform that would raise productivity dramatically – contract farming via long term leasing of the farmer’s land.
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The centre has been advocating this for a while, but the states have been slow to respond. We were waiting to hear about the sort of carrot and stick the centre intended to offer to make this vital reform happen on the ground.
If she had announced a few more of the well-known reforms that the BJP believes in, such as of land and labour, it would have fired the country with excitement.
My greatest disappointment
My greatest disappointment with the Budget is that it did not announce a reversal of protectionism and the failed, bogus idea of import substitution.
The Economic Survey had raised great expectations of an export-led Budget. It had argued persuasively for the importance of India joining up with global value chains and even suggested that ‘Make in India’ should be re-christened ‘Assemble in India’ (in effect, ‘Make in India for the World’).
This is the right time to make such a push because global chains are being reset, given China’s problems. One expected tariff to come down in this Budget; instead, they rose on a number of items.
Remember, no country has become prosperous in history by relying on its domestic market. Exports may well be this government’s biggest economic failure, and this partly accounts for its poor performance in job creation.
India’s exports have been stagnant for the past seven years compared say to Vietnam, whose exports have grown by 300% in the same period.
Still a realistic Budget
Budget 2020 will not catalyse a quick recovery. However, it is a prudent and realistic Budget. There was hardly any fiscal space to give a big stimulus. The FM was sensible not to take risks, the sort of risks we took in the stimulus after the 2008 global financial crisis, which had some nasty after-effects.
Overall, the FM has been prudent in containing expenditure and to budget a modest 10% rise in nominal GDP.
Let me note, in closing, a few nuggets in this Budget – my personal favourites are: 1) a commitment to ensure there is no manual cleaning of sewers; 2) an amendment to the Companies Act to decriminalise many civil offences that have cost this government the trust of the business class, and 3) a taxpayer’s charter that legally commits the state not to harass the taxpayer. If the Modi government can achieve these, it will be no small victory.
