budget 2019 analysis

Explaining the Rise in Revenue Deficit Between Modi Govt’s Interim and Full Budgets

While the revenue deficit is estimated to increase in the Union Budget in comparison to the interim one, the fiscal deficit shows a decline thanks to the increase in capital receipts especially through disinvestment.

A comparison between the Interim Budget (IB) presented on February 1, 2019, and the full Union Budget (FB) presented before parliament on July for the current fiscal year (2019-20) throws up some intriguing questions.

While most commentators have hailed the lack of fiscal profligacy and constraint displayed in reining the fiscal deficit to 3.3% of GDP projected in the FB as against 3.4% in the IB, the increase in the revenue deficit to GDP has gone mostly unnoticed.

Under the new framework of the Fiscal Responsibility and Budget Management (FRBM) Act, ‘Revenue Deficit’ and ‘Effective Revenue Deficit’ have been removed as targeted fiscal indicators of measuring fiscal health of the economy, thus, unlikely to attract much attention.

The revenue account is made up of revenue receipts and expenditure – when the latter is greater than the former, it leads to what is called a revenue deficit. Revenue receipts include tax revenue (which consists of direct and indirect taxes.) and non-tax revenue (such as interest, dividends, profits, external grants etc.).

While the impact of revenue deficit on the fiscal deficit of the Union government can be reduced by increasing capital receipts excluding borrowings, one wonders why a shift in revenue estimates changed over four months.

A closer look at the revenue account – while drawing comparisons between the two budgets released this year – throws up a significant shift in tax revenues. The gross tax revenue estimated in FB (Rs 24.6 lakh crore) reduced by Rs 0.91 lakh crore as compared to IB (Rs 25.5 lakh crore). Among its components, corporate tax is the sole item that shows an increased collection in the FB when compared to IB (of Rs 0.06 lakh crore), whereas all the other items such as income tax, GST, states’ share in tax revenue show a reduction in FB.

Also read: Here Are the Budget Numbers the Finance Minister Does Not Want You to See

The present finance minister has reduced the estimates of tax revenue which could be a cause to worry as the tax on income and GST are lower than IB. This is slightly puzzling because income tax slabs remain the same and the GST rates have not undergone major changes.

While tax revenues have shown a dip in FB, the non-tax revenue estimates depict a different story. Non-tax revenue estimates have increased from Rs 2.73 lakh crore presented in IB to Rs 3.13 lakh crore in FB. This is largely due to higher estimates of dividends and profits, and other non-tax revenue.

The main contributors to dividends and profits are dividends from public sector enterprises and other investments, and dividend/surplus of Reserve Bank of India, nationalised banks and financial institutions, but the full budget presented by Nirmala Sitharaman fails to address how a sudden increase can be expected on these items.

Yet, the estimated increase in non-tax revenue in FB fails to off-set the revenue deficit which increased from 2.2% of GDP estimated in IB to 2.3% in FB. Also, the revenue deficit increased its share in fiscal deficit from 64.7% to 69.7% from IB to FB. This is on account of reduced tax revenue in FB unmatched by a reduction in revenue expenditure as revenue expenditure stays similar in both the budgets.

While the revenue deficit is estimated to increase in FB in comparison to IB, the fiscal deficit shows a decline thanks to the increase in capital receipts, especially through disinvestment. Disinvestment receipts estimated in IB stood at Rs 0.9 lakh crore, which increased to Rs 1.05 lakh crore in FB owing to proposed strategic disinvestment in Air India and other PSUs.

With respect to the fiscal deficit, a comparison between the two budgets shows that the fiscal deficit in absolute terms is not significantly different, as the FB shows a marginal decline of Rs 239 crore only. The fine print lies in the estimated value of GDP. The FB estimates nominal GDP to grow at 12%, whereas it was 11.5% in IB. Considering the same level of growth as expected in IB, the fiscal deficit would continue to be 3.4% rather than 3.3%.

An upward revision in GDP growth rate is based on the premise that larger grants in aid for capital creation – which increased by 3.3% in FB – and recapitalisation of public sector banks through an infusion of Rs 0.7 lakh crore will boost economic activity. These computations are further based on stable crude oil prices and benign inflation. Given the strong stance of the US on Iran sanction and shortfall in monsoons, inflation may not remain comfortable after all.

A downward revision of the GST receipts from IB to FB indicates that government expects lesser GST revenue, implying that the problems associated with using the GST network are still persisting, hampering collections. Also, the targets set for receipts from disinvestment seem exaggerated. The reduction in revenue receipts and overestimation of capital receipts may lead to a larger deficit in fiscal indicators.

The efforts of the FM by bringing firms with below Rs 400 crore turnover under the 25% tax-bracket is well appreciated as this leaves larger corporate income for reinvestment acting catalyst for private activity.

On the other hand, the government should focus on making GST filing a simple and easy procedure to increase revenue collections, fast-tracking the disinvestment process and ensuring that the public investments lead to 12% growth rate as envisaged in the FB for the achievement of fiscal targets.

Aneesha Chitgupi is a Research Fellow at Fiscal Policy Institute, FPI.

Budget 2019 Shows Centre’s Neglect of Comprehensive Social Protection

While the budgetary figures give the impression that the government is staying the course with many social welfare programmes, it may well be chipping away the architecture of social protection in India.

There is widespread agreement that social protection, for the large part, is the responsibility of the state. It is broadly understood as measures to reduce poverty and vulnerability by reducing people’s exposure to risks, and enhance their capacity to manage those risks, including those associated with unemployment, exclusion, sickness, disability and old age.

Extending such support to the poor and vulnerable is, in fact, a prominent part of the United Nations Sustainable Development Goals (SDGs) (Goal 1.3). The Union Budget presented annually offers an opportunity for the government of India to highlight its policy priorities. The Budget speech itself customarily dwells on allocations to different programmes including social assistance, insurance and labour-market interventions. Although the Budget is rarely viewed as the authoritative statement on government’s intent and actions, a scrutiny of the allocations is useful to see if it is consistent with stated policy and also, if it is commensurate with the task at hand.

This was a different Budget in unfortunate ways. Rarely have we encountered a Budget in recent years that did not allude to many of the pressing concerns of our time or of an explicit recognition of the state’s role in social protection. Poverty was mentioned only once in the context of the proposed initiatives on tackling black money [para 7]. Employment and jobs find mention in the very limited context of a supportive tax policy to support job creation, building skills and regeneration of traditional industries.

While the thrust is, rightly, on the need for job creation, there is no explicit acknowledgement of either the current unemployment situation and widespread rural distress, or the need to provide credible safety nets for those vulnerable to income shocks. For example, there was no mention of MGNREGA (Mahatma Gandhi National Rural Employment Guarantee Act), despite its well-established role as a credible safety net and its role in times of rural distress.

Nor is there any mention of malnutrition – a stubborn problem that requires substantial investments, especially targeting mothers, children and adolescent girls. Health too got short shrift, other than references to the Swachh Bharat Abhiyan, and a brief allusion to health in the Budget’s vision statement. To the extent that the Budget signals the priorities of the government, it would seem that a well-defined agenda for broad-based social protection is missing from the government’s vision as it endeavours to build a US$5 trillion large economy.

Also read | Budget 2019 is Neither Welfare Nor Growth Oriented

What then do we actually have in terms of allocations to social protection programmes? It is worth keeping in mind that budgetary allocation to a specific programme is often not what is eventually spent. For example, whereas the National Social Assistance Programme (NSAP), a cluster of programmes that include pensions to the elderly, disabled and widows was allocated Rs 9,975 crores in 2018-19, the revised estimates were lower at Rs 9,200 crores.

The reverse could be true as well. For example, in January 2019, an additional Rs 6,084 crores was allocated to MGNREGA, in addition to the 2018-19 budgetary allocation of Rs 55,000 crores, owing to the unanticipated demand for work under the scheme. Assessments of budgetary allocations therefore require caution.

Table 1 presents allocations of major centrally-funded schemes representing a few aspects of social protection – employment guarantee, specific food-based schemes to forward maternal and child nutrition, pensions and cash assistance to widows and cash transfers to pregnant and nursing mothers and health interventions such as insurance.

Also read | Budget 2019: A Mixed Bag of Good and Bad With No Clear Roadmap

Table 1 places the 2019-20 allocations against actual expenditures for 2017-18, budgetary allocations for 2018-19, and subsequent revisions for 2018-19, where relevant.

Table 1. Budget allocations for 2019-20 against actual expenditures for 2017-18, budgetary allocations for 2018-19, and revised allocations for 2018-19

Programme	Budget 2019-20 (Rs crores)	% change over 2017-18 actuals	% change over revised 2018-19 estimates	% change over 2018-19 budget estimates
Mahatma Gandhi National Rural Employment Guarantee Programme	60,000	8.8	-1.8	9.1
National Programme of Mid Day Meal in Schools	11,000	21.0	10.6	4.8
Indira Gandhi National Old Age Pension Scheme (IGNOAPS)	6,259	2.4	4.8	-4.7
National Family Benefit Scheme	673	26.8	-0.4	-12.9
Indira Gandhi National Widow Pension Scheme (IGNWPS)	1,939	6.7	-1.5	-14.1
Indira Gandhi National Disability Pension Scheme (IGNDPS)	247	11.8	-4.6	-10.7
Anganwadi Services (Erstwhile Core ICDS)	19,834	30.9	10.9	21.4
Pradhan Mantri Matru Vandana Yojana (PMMVY)	2,500	22.1	108.3	4.2
Scheme for Adolescent Girls	300	-33.4	20.0	-40.0
National Creche Scheme	50	2.5	66.7	-61.1
National Health Mission (Rural and Urban)	32,995	4.7	7.5	9.5
Rashtriya Swasthya Bima Yojna (RSBY)	156	-65.8	-48.0	-92.2
Ayushman Bharat – Pradhan Mantri Jan Arogya Yojana (PMJAY)	6,400	N.A.	166.7	N.A.

The budget allocations for most of the social protection programmes represent only marginal increases from the previous year, in many cases, barely compensating for the inflation rate. In virtually all of the cases, however, they fall well short of what is required to achieve comprehensive and credible social protection.

They also represent a missed opportunity to redress some serious shortcomings in many of the programmes. For example, pensions for the elderly and for widows are paltry at Rs 200 per month and have remained unchanged since 2006. The ICDS (Integrated Child Development Services) allocations are barely enough to cover the increased salaries for anganwadi workers and helpers, announced earlier in 2018.

This leaves little for the critical improvements required in basic anganwadi infrastructure and services. The PMMVY (Pradhan Mantri Matritva Vandana Yojana), a critical support for pregnant and nursing mothers has an allocation of Rs 2,500 crores (about 4% higher than the previous year’s budget estimates). The PMMVY transfer stands at Rs 5,000 per mother (as opposed to Rs 6,000 mandated by the National Food Security Act), is contingent on a host of conditionalities and is restricted to the first child.

Also read | Explained: Why Centre’s Reported Finances in the Economic Survey and Budget Differ

These recent changes already represent a retreat of support to a critical segment and represent neither expanded coverage nor larger per capita allocations. The fact that it represents a 108% increase over the revised 2018-19 estimates merely suggests that the programme has not gained any traction.

MGNREGA allocations are down from the Rs 61,084 crores relative to the 2018-19 revised estimates. This is in a situation where the demand for MGNREGA has recently routinely outstripped allocation. Critiques have already emerged on the inadequacy of allocations to the health sector which fall well short of the health policy commitment to ramp up public health spending to 2.5% of the GDP (gross domestic product). Further, schemes that have seen the largest increase in allocations such as the PMJAY (Pradhan Mantri Jan Arogya Yojana), are designed to compensate private providers for health services to the poor.

Naturally, this is not a comprehensive view of social protection and there exist several other initiatives, which collectively have significant allocations. However, this does not detract from the fact that this Budget offers clear signs of benign neglect when it comes to comprehensive social protection. Interestingly, the only use of the phrase “social welfare” in the Budget speech is in the context of enabling voluntary organisations to raise funds in capital markets [para 34]. While the budgetary figures give the impression that the government is staying the course with many social welfare programmes, it may well be chipping away the architecture of social protection in India.

Sudha Narayanan is with the Indira Gandhi Institute of Development Research.

This article was originally published on Ideas For India.

Budget 2019 is Neither Welfare Nor Growth Oriented

The Budget does not provide a convincing picture of an assured growth path with welfare leading to development in the near future.

The Central government’s Budget has been unsuccessful in providing the country with commitments to ensure growth or welfare. Given the current state of poverty, farmer distress and jobless growth in the economy, it could be expected of a democratically-elected government to initiate welfare measures on a priority basis.

Instead, the Budget starts with a ‘big bang’ announcement of a targeted $5 trillion GDP to be reached by FY 2025, and achieved mostly with private domestic investments, proceeds of disinvested public sector undertakings as well as external sources of short-term as well as long-term capital. Not much, however, is provided to explain the mystery behind what it implies in terms of real GDP growth in terms of Indian rupees.

It is also rather confusing why the target has to be articulated in US dollars when the rupee is considered a sovereign currency. However, given the compliance to the prevailing norms of the Fiscal Responsibility and Budget Management Act (FRBMA), the fiscal deficit at 3.1% as targeted for the current financial year does not leave much leeway for an expansionary budget which can be channelled by additional public expenditure, which could be on capital investment as well as social sector spendings.

The responsibility of achieving the growth targets as above thus calls for a heavy reliance on private investments, both from within the country and from overseas. It does not require much to point out that none of the two can be definitely projected as achievable in market economies under uncertainty.

Also read | Budget 2019: A Mixed Bag of Good and Bad With No Clear Roadmap

The Budget also directs attention to the welfare orientation of policies in the next financial year. This much of cognisance was rather warranted, given the rather dismal state of the economy: rising poverty levels, high unemployment and shrinking labour force participation ratio.

In addition, the widespread farmer distress in agriculture provides few openings for survival in rural areas, mostly due to cuts in public expenditure on agriculture in the form of investments and subsidies.

One notices here the structural changes in the sector-wise composition of output which include the rising share of services at around 50% or above that of the GDP since the mid-seventies while contributing a much less proportion of aggregate employment – currently at around 26%. With agriculture still absorbing as large as nearly 50% of the employed, and industry along with construction employing around 13% and 10% respectively, options for those in the labour workforce to gain employment, especially in formal job openings, remains limited.

It has been pointed out that, of the jobs provided in the organised (formal) sector of the industry, about 50% are in an informal capacity, fetching no benefits as the ones that are there in formal labour contracts.

Continuing with the rather dismal scene in the economy with the lack of formal job opportunities in industries (providing less than 12% of aggregate jobs in the economy) and the similar lack of jobs in the formal sector of services, there continues a mass exodus of people excluded from such jobs – towards the informal economy of India, which is a major destination.

Also read | Does Modi 2.0’s First Budget Back Its Promises With Adequate Expenditure?

Specific thrust has been given in the Budget to infrastructure, rural economy, housing, farmer welfare, water security, labour and youth welfare – the implementation of which has a natural orientation towards welfare in the economy. The Budget hints at the possible availability of private sources of funding to achieve much of the above goals, especially in infrastructure.

Of the rest, the budgetary sources relate to items of public expenditure under specific heads. The estimates of those, as per the Budget and calculations by SBI, include: ‘grants for creation of capital assets’ (1.0% of GDP); ’capital expenditure’ (1.6%); subsidy (1.4%); education (0.4%); health (0.3%), rural development (0.7%); social welfare (0.2%); urban development (0.2%) and agriculture and allied activities (0.7%).

In all, the sum amounts to 6.3% of GDP over the budgeted year 2019-20. Relating above to budgetary expenditure estimated at 3.1% of GDP under the head of interest payments on past official borrowings from the public, it appears that the sum procured by those holding financial assets marketed by the state is rather substantial as compared to the aggregate subsidies and other developmental expenditures.

The above is reflected in the gap between the fiscal deficit currently at 3.1%, and the primary deficit (which excludes interest payments) at 0.2% of GDP. The gap has been continuing at around the same level over the last couple of years or more, in effect pushing the primary deficit much below the fiscal deficit.

It can be recalled here that the primary budget expenditure includes only defence, capital expenditure and social sector expenditure, thus excluding interest payments listed in the fiscal budget. Of the three items of expenditure as above in the primary budget, the last two gets reduced as a proportion of GDP as the interest bill keeps rising, which is more likely with additional borrowings in the future.

Also read | Budget 2019 Sorely Lacks a Coherent Vision for Long-Term Growth

In effect, the squeeze of the primary deficit also reflects the parallel shrinking of the developmental content of the budget as a whole, which include capital expenditure and social sector expenditure in the primary budget.

With public initiatives towards a welfare orientation as well as for growth sounding rather lacklustre, the Budget does not provide a convincing picture of an assured growth path with welfare leading to development in the near future.

Sunanda Sen is former professor, Centre for Economic Studies and Planning, Jawaharlal Nehru University, New Delhi. She can be reached at sunanda.sen@gmail.com.

Centre Has Lowered Its GST Target, but Is It Still Too Ambitious?

The target for FY20 was brought down from the interim budget figure of Rs 7.61 trillion to Rs 6.63 trillion.

New Delhi: The Union government rationalised its expectations for tax revenue collection in FY20 while presenting the Budget. Instead of the projected collections in the interim budget of Rs 25.52 trillion, the budget on Friday pegged the government’s gross tax revenues at Rs 24.62 trillion.

A large part of this lowered revenue expectation came from reducing the Centre’s targeted revenue from Goods and Services Tax (GST). The target for FY20 was brought down from the interim budget figure of Rs 7.61 trillion to Rs 6.63 trillion.

Every expert agrees the new target is more reasonable compared to the interim budget numbers. But is it still too ambitious?

Yashodhan Pande, senior advisor for indirect taxes at Deloitte says, “This is certainly a more reasonable target. Is it still ambitious? Compared to the provisional actual numbers, there is still a high expectation. It depends on the underlying assumptions the government has made on growth of economy and improvement in compliance levels contributing to rise in GST collections. There are several variables at play currently.”

GST, introduced in FY18, has had a turbulent period so far and is yet to stabilise. A well-established tax system would have predictable tax buoyancy – how fast the collections grow as a proportion to the growth of the economy. But that is not the case with GST. It is still undergoing substantial changes as the government responds to structural as well as administrative glitches. The underlying assumptions of what would ensure a revenue-neutral transition from the previous indirect tax regime and how the growth of states’ GST revenues would stabilise over five years are all still up for questioning.

Ignoring these complications temporarily, one would first compare the target for FY20 with the collections for FY19. The Budget document sticks with the revised estimates to say Rs 5.04 trillion was collected as Central Goods and Services Tax (CGST). But the Economic Survey tells us that the CAG has computed the provisional actuals of overall net tax revenues for FY19 to be much lower.

Also read: Budget 2019 Sorely Lacks a Coherent Vision for Long-Term Growth

While it doesn’t give the exact numbers for provisional actual GST, if one was to maintain the same ratio between net tax revenues and CGST, the provisional actual collection of CGST would be pegged at Rs 4.06 trillion – a substantial Rs 97,979 crore less than the revised estimates the budget uses.

This number reflects CGST after the Interstate Goods and Services Tax for the year has been reconciled for the year into central and state coffers.

It means the government even now expects the CGST collections to grow this year by a whopping 29.58%.

The other simple parameter is to see how collections have done between March-June so far. The CGST collections for the first quarter of FY20 amounted to Rs 33,257 crore per month on average.

This is on the higher side than the actual. It includes the seasonal spike that collections witness in April and does not account for the refunds to be set-off for June. Compared to this, the ask now is Rs 47,358 crore per month on average for the rest of the nine months, 42% higher than the existing average for the first quarter – plausible but uphill believe experts.

Kotak Institutional Equities Research noted, “The government’s estimates for central GST, Interstate GST (IGST) and compensation cess imply about Rs 12.7 trillion of total GST collections. This translates to Rs 1.06 trillion monthly run-rate, which is meaningfully higher than the monthly run-rate of about Rs 89,100 crore based on collections for three months of FY20.”

Finance ministry officials told Business Standard that there were specific reasons for low numbers in the first quarter of FY20. “The fact that the 28% slab included more items in Q1 FY19 than in Q1 FY20, we expected some dip in growth this quarter. But growth will improve along the year as it will be on a low base, and on the projection that economic activity will revive,” one said.

Another official added that Q1FY20 also witnessed general elections, slowing down public investment activity and stalling new tenders. “Rate stabilisation is imperative. The catalyst is compliance, which has witnessed improvement in April to June quarter,” he added.

Also read: Modi 2.0 Unveils Seemingly Fiscally Responsible Budget Aimed at Boosting Growth

For a tax system that had stabilised this would still be a predictable exercise. But uncertainty haunts both the compliance mechanism and the GDP growth. With the government projecting a healthy uptick of GDP, experts presume it has hitched the hope on good GST collections to this underlying growth. The Budget notes, “Nominal Gross Domestic Product for 2019-20 is expected to be Rs 211 trillion which indicates a nominal growth rate of 12% over the previous year.”

But on tax buoyancy, the Budget is not very optimistic. It notes as part of the Medium Term Fiscal Policy cum Policy Strategy Statement, “For the financial years 2020-21 and 2021-22, GST is expected to have a buoyancy of 1.0 with respect to nominal GSP growth rates of the respective years.” In other words, the government, too, does not see a great leap in compliance soon – tax collections will grow at the same rate as GDP, the government predicts.

Officials speaking off the record agreed that collections at this unstable stage of GST depend on compliance improvement beyond just number of returns being filed. “We are seeing a large leakage because of input credit scams. One part of this is structural. We have not activated the reverse charge mechanism for all. It’s a politically fraught decision because it will impact the trading community most. But it could stem the leakages partially and increase revenues,” said one official.

He pointed to data on how GST revenue from businesses with turnover below Rs 1 crore was providing below 9% of the total GST revenue.

Parande added, “The GST system will take some more time to stabilise. We will only come to know through the year how the new set of returns improve compliance. Then there are questions over the impact that changes in how input credit is accounted for to reduce leakages and then set off does to CGST and SGST collections.”

He was referring to the flexibility provided recently to adjust input credit against different streams of GST. This will have some impact on how much cash is collected against CGST as compared to SGST after businesses set off standing input credit on their ledgers. The former has been lagging in terms of cash collections so far.

Yet another senior official said, “We are beginning to learn what is the optimum revenue we should be getting from key sector chains at a certain size of the activity. The rapid changes in the system do not allow us to make temporal comparisons. Say, what is the optimum levels of input credit that should be standing in a certain chain and how much should be coming in as cash. Answering questions like this through analytics will help improve compliance.”

By arrangement with Business Standard.

Backstory: The Sound And Light Show That Was Budget 2019

A fortnightly column from The Wire’s public editor.

I once had the good fortune of interviewing professor Leonor Magtolis Briones, a former advisor to the president of the Philippines who evolved into a passionate transparency activist with an international reputation. She was one of the anchors of a people’s initiative to de-mystify the budget process in order to get ordinary citizens to participate more directly in it.

As I witnessed the sound and light show that the recent budget was often reduced to in the media, Briones’s words came back to me. “Two aspects need highlighting. First, the people should own their country’s budget, since the money comes from them. Second, the priorities of the government are different from the priorities of people. Therefore, there is a need to ensure that the priorities of ordinary people find their way into the government’s priorities.”

What, after all, is a budget? It is an exercise, both symbolic and real, of a relationship between the state and the citizen, in which national resources are utilised for the greater common good. Every person has the right to have the government deliver on this promise in a fair, transparent and even-handed way.

Since we – including the media – in this country have not internalised these principles sufficiently, the voice of the ordinary person rarely emerges in our budget-making process. Consequently, her or his interests too remain submerged. Since we have not heard the voices of those who have had no choice but to defecate in the open, and have not been presented with the necessary data, we go along with Union finance minister Nirmala Sitharaman’s averment in her Budget speech that on October 2, 2019 – magically on Gandhi Jayanti – the whole of the country will be open defecation free, or at least declared to be so.

Since we have not heard the voices of farmers directly, the fear of drought that has gripped them so powerfully does not make its way into the Budget speech. Since those who suffered personally from demonetisation have not had a chance to remind the country of their experiences, it is easy for the government to be in denial over it. Even the possible impact that the note ban may have had in “dwarfing” some MSMEs (micro, small and medium enterprises) does not come up for consideration. Since the voices of industrial workers and trade union leaders don’t typically figure in pre-budget interviews and commentary, the proposed Code on Wages bill is applauded without comment in the Budget speech.

Also read | Union Budget 2019-20: All You Need to Know

While corporate heads and well-heeled urbanites get chances to present their wish list to the Union finance minister – in many cases, these were the only people that the media showcased – the parents of the sick children of Muzaffarpur get no similar opportunity. No surprises then that public health – in contrast to “wellness centres”, health insurance peddlers and private players – was in a fade-out mode in the Budget speech. As for school education, did anyone care to ask what became of Arun Jaitley’s proposal made in his Budget speech of 2017 to “introduce a system of measuring annual learning outcomes in our schools”? Not the media, certainly.

They had other thoughts on their mind. A new gimmick the media introduced this time was to track “keywords” to get a sense of the Budget, a modus operandi in sync with the facile coverage. At this rate, the budget speeches of the future may get reduced to a string of keywords and we may yet be spared two-hour-seventeen-minute marathons like the latest one was.

Even the Economic Survey came up with an ‘economic policy uncertainty’ index, based on a US model that culled keywords from newspaper coverage to conclude (no surprises here) that “uncertainty around economic policy peaked in India during late 2011 and early 2012 (during the ‘policy paralysis’ of the UPA-II years), it has since been declining with intermittent increases in between” (‘Has Modi Reduced Economic Policy Uncertainty? Survey 2019 Uses Media Coverage Index to Say Yes’, July 5).

As only the second woman to present the Union Budget, there was also a great deal of objectification of Sitharaman. The Press Information Bureau felt impelled to make her appear a pale-complexioned nari, and Zee News even put out pre-Budget alerts of her image as Goddess Lakshmi, pouring gold coins into our laps. Neither Chidambaram nor Jaitley – or any of the men before them delivering the Budget – has been subjected to such treatment.

All in all, if there is one glide path in the budget narrative, it is the glide path of faith, hope and glibness. All shall be well, and all shall be well, and all manner of things shall be well, as we emerge as a $5 trillion economy under Prime Minister Narendra Modi’s stewardship.

In the lead up to the Budget, The Wire – thanks to its prolific contributors – was able to flag aspects about it that most other publications had overlooked or ignored. This included an incisive look at how “development”, buttressed by huge budgetary outlays, can rob the country of its wealth in multifarious ways.

The report, ‘Mumbai’s People, and the Environment, Are Paying for the City’s ‘Development‘ (July 4), written even as Mumbai was drowning in a monsoon downpour, pointed to the environmental impacts of three ambitious projects – the bullet train, the Mumbai coastal road and the Metro 3 project. It quoted the figure put out by the Maharashtra transport minister that the bullet train is slated to destroy “around 54,000 mangroves spread over 13.36 hectares”.

Another analytical piece, ‘Why Not Use Budget 2019 To Be More Honest About What it Takes to Fund a Welfare State?’ (July 5), began with the lines, “The one thing finance minister Nirmala Sitharaman must do in her budget statement is to be transparent and upfront about the actual borrowings by the government.” Well, it was the one thing she did not do, and it was important to flag the omission in hindsight.

The Wire also raised hard questions: “The budget assumes a massive 25% growth in total revenue receipts (2019-20) which are pegged at Rs 19,62,000 crore. How can such high revenue growth be possible in a slowing economy?” (‘Budget 2019 Sorely Lacks a Coherent Vision for Long-Term Growth’, July 5); and zeroed in on the paradoxes: “at international forums like G20 meetings and World Economic Forum, India has indicated that there is no “retreat from globalisation” – but the budget announcement of rising custom duties has signalled a ‘protectionism wave’ in India” (‘Nirmala Sitharaman’s Maiden Budget is an Exercise in Taming Policy Uncertainty’, July 5).

Also read | Budget 2019 Reeks of a Lack of Real Ambition

Finally, it did not shy away from forensic scrutiny of the claim-making that was rife. The article, ‘Does Modi 2.0’s First Budget Back Its Promises With Adequate Expenditure?’ (July 5), argues that achieving the government’s $5 trillion GDP target by 2024-’25, with the 5.8% growth we have at present, would require a ‘run rate’ of 17% growth at the end of the five-year period, which is “impossible”. The problem with such ambitious projects, the piece rightly points out, is that it “dents the credibility of the government.” Another assessment, ‘Budget 2019 Sorely Lacks a Coherent Vision for Long-Term Growth’ (July 5), points out that “the budgeted revenue math is so shaky that for the first time the finance ministry has chosen to factor in receipts of Rs 90,000 crore from the RBI’s balance sheet as ‘surpluses’.”

The Wire also tried to bring in some sparkle through its live blog and conversations on video. I only have a small quibble. If old videos are to be re-circulated – and it is always a good idea to put out archival material if they fit the current context – their original date of publication must be clearly mentioned alongside. The only way I could make out that the video, ‘How Ayushman Bharat Got a Silent Boost in the Budget’, accompanying the piece, ‘Budget 2019: Spearheaded by Ayushman Bharat, Swachh Bharat, Health Gets a Boost’ (July 5), was not a fresh one, was to go by the winter wear of the speakers.

Journalists seriously affected by ‘labour reforms’

The major legislative protections that journalists had fought for and won in the 1950s, and which have served as a shield for them over the years, will now be invalidated once the Code on Wages Bill becomes law. The Union cabinet has just cleared it. This includes the internationally applauded Working Journalists and Other News Paper Employees (Conditions of Service and Miscellaneous Provisions) Act, 1955.

The Delhi Union of Journalists (DUJ) recently petitioned Santosh Gangwar, minister of state for labour and employment, stating: “The media community was shocked to find that the Working Journalists & Other News Paper Employees (Conditions of Service & Miscellaneous Provisions) Act, 1955 and the Working Journalists (Fixation of Wages) Act, 1958 are both to be repealed through these Labour Codes.” It went on to say, “It is honourable Members of Parliament who, shortly after Independence, realised the need to protect journalists and enable them to earn a decent livelihood by setting basic standards for the newspaper industry through these two Acts.” It also expressed its incredulity over how these laws are now sought to be repealed by placing them innocuously in a Labour Code on Occupational Health and Safety.

The two Acts, DUJ, points out, regulate “working conditions, including working hours, night shifts, earned leaves, maternity leave, provident fund etc and enable the periodic setting up of Wage Boards that decide pay scales for the newspaper industry. They set basic standards for all media. We do not understand why these Acts should be repealed. Without such legal protection, the independence of journalists shall be further weakened.”

O what a lovely law!

Section 124A of the Indian Penal Code, or the sedition law, emerged under British rule and continues to live a full life in independent India. Now we have just had the joyful tidings that this draconian law will be with us up to the foreseeable future. The minister of state for home, Nityanand Rai informed parliament that the country needs to “retain the provisions to effectively combat anti-national, secessionist and terrorist elements.”

Anyone who is deemed to be inconvenient to the government, as we know from recent experience, can be such an “element” – from human rights activists and rap singers to university students and, of course, journalists. As the writer of the piece, ‘The Establishment Has Sent a Hard Core Message to Dissenters and Critics’ (June 25) remarks, “the enthusiasm with which BJP governments use the law of sedition for what is at worst libellous is alarming.”

The Wire reader, Vis Jai, is perturbed by the trend of print media job advertisements demanding Aadhaar details from applicants. He goes on to cite a specific instance: “On 29 June, Divya Bhaskar (Dainik Bhaskar Group) published an ad for sales assistants in Ahmedabad… and mentioned the requirement of two photographs and a copy of Aadhaar to be submitted. This is an attempt to ignore the Supreme Court verdict on the issue.” He now plans to name and shame all entities that violate the apex court’s order in this manner.

Write to publiceditor@cms.thewire.in

Centre Keeps Promise of Hiking Agriculture Budget; Kisan Sabha Pans Rhetoric

As expected, a large part of the outlay was set aside for the PM-Kisan scheme.

New Delhi: Following up on its promise in the interim Budget, the Centre, on July 5, proposed to hike the budgetary allocation for 2019-20 to the agricultural sector by 78%. At its centre is the government’s all-important scheme announced this February, the Pradhan Mantri Kisan Samman Nidhi or PM-Kisan.

Finance minister Nirmala Sitharaman allocated to the Ministry of Agriculture and Farmer’s Welfare Rs 1.39 lakh crore for the current fiscal year, out of which, as pledged in the interim Budget, Rs 75,000 crore has been set aside for PM-Kisan.

In February, announcing the scheme to revive rural economy, interim finance minister Piyush Goyal had called the occasion “historic”. The nationwide scheme promises to pay a supplementary income of Rs 6,000 every year to each of the 120 million farmer families who own fewer than five acres of land.

While the financial burden of the scheme on the Centre slated was to be Rs 20,000 crore in the 2018-19 fiscal, it will mount to Rs 75,000 crore during 2019-20.

Also read: MGNREGS Likely to Overshoot Budget Allocation

Government figures made public in June said Rs 12,505 crore was released directly to the bank accounts of the beneficiaries chosen under the scheme.

Aside from this feature, the interest subsidy for short-term credit to farmers have also been raised from Rs 15,000 crore to Rs 18,000 crore. The government has proposed to increase the allocation for the Pradhan Mantri Fasal Bima Yojana (PM-FBY) too from the last fiscal’s revised estimate of Rs 12, 975.70 crore to Rs 14,000 crore.

While the planned outlay for the Market Intervention Scheme and Price Support Scheme (MIS-PSS), which focuses on ensuring minimum support price to farmers in case of steep fall of crop rates, has been adhered to, that of Pradhan Mantri Annadata Aay Sanrakhsna Yojana (PM-AASY) has been taken up by Rs 1,000 crore from last year’s estimate.

As many as 18 Central schemes have been put under the bracket of the ‘Green Revolution’ which has been allocated Rs 12,560 crore for the current fiscal, against the estimate of Rs 11,802 crore for 2018-19.

Together, the total planned outlay for the sector for the current financial year has been taken up to Rs 13,0485.21 crore, as against the estimate of Rs 67,800 crore for 2018-19.

Reacting to the budget allocations, All India Kishan Sabha, however, called it “empty rhetoric.”

Also read: A Budget Presentation High on Symbolism

“The budget has nothing concrete for farmers and is merely empty rhetoric. It doesn’t address the issue of remunerative prices for farmers’ produce or suggest any steps to free them from debt. Rather, the government adds to the burden of farmers by proposing Rs 2 cess on diesel which will increase the cost of production significantly,” it said in a press note.

It also added, “With a huge rise in the cost of seeds, fertilizers, diesel and electricity as a result of decontrolling of their prices and imposition of the GST (Goods and Services Tax), the government needed to restore price regulation and bring input costs under control. Not only has the finance minister done nothing about it, to add insult to injury, she has declared that farmers should not buy any inputs and instead practice zero-budget farming.”

The Sabha, in a press note, also said that the allocation for MIS-PISS “is grossly inadequate for meeting the requirements of procurement.”

It called upon all its units “to rise up in protest against the betrayal of peasantry and be vigilant and resist any attempts to promote corporate interests.”

Budget 2019 Fails to Give Education the Radical Boost it Needs

The National Education Policy’s good intentions and recommendations are likely to come to naught if the finance ministry does not find a way of opening its purse strings.

The Narendra Modi government has just won a huge mandate from the people – for many an unexpected win given the poor state of the economy, the high unemployment rate, agricultural distress and falling growth rates. In reposing their faith, the people have given this government a second chance to fix these problems and deliver tangible results. Expectations are high for them to act decisively and find solutions.

Big bang announcements were thus on the cards for this Budget. The need to boost private investment and improve growth prospects loomed large on the agenda. The private sector also made its position very clear – demanding incentives in the form of a reduction in corporate tax rates, labour reforms and improvement in infrastructure that would reduce their costs of production.

Unsurprisingly therefore, corporate taxes have been reduced. The 25% tax bracket for all private companies with annual turnover of Rs 400 crore (up from the Rs 250 crore earlier) will cover 99.3% of all companies.

Also read: Budget 2019 Sorely Lacks a Coherent Vision for Long-Term Growth

Labour reforms have also been alluded to through the simplification of all labour laws into a set of four codes. What they will include is yet to be known – but if it will be geared towards private enterprise is not unknown.

The surprise elements, however, are in the topic of infrastructure development, especially on the raising of funds through foreign bonds, thereby breaking a cardinal rule of governments thus far.

In fact, the subject of raising of funds for social infrastructure also saw a radical shift with the announcement of a social stock exchange that would enable the raising of private funds for social sector projects. What would these include? Would basic education and health fall in this category too? Details are still awaited, but one can hope that that is precisely the intention.

Who will spend on education?

To look at education specifically, public spending on it has always been far below what was desired. In absolute terms, it has inched upwards every year but it has never matched the accelerating demand and its share has remained far below the 6% of GDP suggested by the Kothari Commission in as early as 1965.

While previous governments have been as much to blame, the Bharatiya Janata Party government had hit a new low with an allocation that amounted to 2.6% of GDP last year – the lowest in decades.

In fact, the shift away from the public in provisioning of social services has been steadily increasing since 2014-15. Appeals to the private sector to step in and boost the efforts of the state in education through the introduction of technology, provision of books, designing evaluations, public private partnerships in management, provision of mid-day meals, have all been on the rise.

Further, the private has increasingly been seen as a measure of the public, neglecting the larger public role of education.

Also read | Defence Budget: Skewed Ratio of Allocations Hurts India’s War Preparedness

In this context, it was refreshing to see the draft National Education Policy (NEP) making a strong case for public investment in education, including school education. In fact, its recommendations cover a vast range of reforms that would require a huge increase in public spending – incrementally, but also as one-time additions.

The draft also includes in its suggestions several sources of private funding, such as Corporate Social Responsibility and individual philanthropy. The idea of a social stock exchange appears to be in line with this growing idea of leveraging private funds for social efforts.

However, it ignores the fact that thus far such sources have amounted to a minuscule portion of the total expenditure on education and it is hard to see them increase significantly in future either.

The demand for spending on education has been increasing at an exponential rate and requires huge resources – a requirement that has consistently been ignored. Turning to private funding now is not likely to provide a solution.

There was not even a murmur on school education in the Budget speech. Image: Pixabay/Wokeandapix

A subject glossed over

Unfortunately, education was barely alluded to in the Budget, barring the mention of a National Research Fund to facilitate cutting edge research by higher educational institutes – one of the suggestions made in the draft NEP.

And the youth were mentioned in the context of providing them skills that would enable them to get jobs abroad, such as in foreign languages and artificial intelligence. Given all the challenges facing young people, including acquiring basic educational skills, mentioning just this point does come across as rather odd.

There was not even a murmur on school education in the speech. So one has to rely on the budget documents to get a sense of what the government has in mind for this year. What that says is that the allocation for National Education Mission, that covers Samagra Shiksha Abhiyan, has increased from Rs 34,000 crore last year (including the supplementary budgetary allocations) to Rs 38,547 crore this year, clearly with no reference to the suggestions in the NEP.

Also read: Education and Employment Drew Blanks in the Interim Budget

One can only hope that there would be supplementary budget provisions later that reflect the finalised policy, even in small measure.

A reminder to those behind the NEP

From the manner in which public private partnerships and private funding is being prioritised, the government is clearly not planning on any course corrections in the manner in which it views provisions for education.

Those behind drafting the NEP have just shifted the deadline for submissions on the Ministry of Human Resource Development website to the end of July. They would do well to take into account the paucity of resources from the treasury as they finalise the policy after taking recommendations.

Otherwise, instead of referring to the 1965 Kothari Commission’s advise for a 6% of GDP share for education, we will now be referring to the Kasturirangan Committee’s recommendations for the exactly same.

The new policy comes after a long gap of more than three decades. It recognises correctly the critical juncture at which the sector is poised and the need to invest in it. But all its good intentions and recommendations are likely to come to naught if the finance ministry does not find a way of opening its purse strings.

In the era of radical shifts, this one is long awaited and much needed.

Kiran Bhatty is a senior fellow at the Centre for Policy Research, New Delhi and a founder member of the Forum for Deliberation on Education.

Budget 2019 Sorely Lacks a Coherent Vision for Long-Term Growth

While Nirmala Sitharaman’s maiden budget hit all the right political notes, its fiscal math is far fuzzier.

The first budget of the Narendra Modi government 2.0 is very high on political rhetoric around empowering the poorest in ‘New India’, but does not have a clear road map of how a fully-funded welfare state will be sustained without a robust revival in growth, based on the twin engines of investment and consumption firing simultaneously.

Finance minister Nirmala Sitharaman has made all the right noises, reflecting Modi’s pet themes of last mile welfare delivery, but there was no cohesive strategy on how growth will revive amidst a softening global economy and India’s own manufacturing and agriculture output trending downward for some time.

The budgeted revenue math is so shaky that for the first time the finance ministry has chosen to factor in receipts of Rs 90,000 crore from the RBI’s balance sheet as “surpluses”. That this is being done even before the Bimal Jalan committee has made public its recommendations shows there is a desperation to raise funds to meet the massive physical and social infrastructure needs which may help boost employment.

Also read: Modi 2.0 Unveils Seemingly Fiscally Responsible Budget Aimed at Boosting Growth

Another potentially risky strategy being envisaged by the government for the first time is to raise sovereign debt via dollar denominated bonds to fund the needs of infrastructure. The finance minister’s justification for partially dollar-ising India’s fiscal deficit is that the country’s total external borrowings are below the safe limit of 5% of GDP. Normally, sovereign borrowing by nations is for big amounts, in the range of $5 billion to $10 billion. Governments in the past have considered the idea but eventually dropped it because the dollar debt has to be repaid in hard currency and carries immense exchange risk.

In any case, raising such money has other imponderables as it would create a benchmark for India vis a vis other countries like China in the global markets.

Union finance minister Nirmala Sitharaman presents the Union Budget 2019-20 at the Lok Sabha on July 5. Photo: PTI

Nevertheless, Sitharaman is embarking on this strategy possibly to create long-term funding avenues for infrastructure. The biggest structural crisis faced by the economy today is the near collapse of the banking system, which cannot find long tenure infrastructure projects of 10-15 years anymore. Already about Rs 4 lakh crore of bank funded infrastructure projects have nearly turned into NPAs.

This is the backdrop in which Sitharaman has announced a special committee to go into how long-term debt could be raised to fund infrastructure projects worth Rs 100 lakh crore over the next five years. India’s sustained revival of growth and employment largely hinges on this and at present the picture is rather fuzzy as to how this committee will go about its task.

So funding growth, and consequently welfare, remains an area of grave uncertainty. The budget assumes a massive 25% growth in total revenue receipts (2019-20) which are pegged at Rs 19,62,000 crore. How can such high revenue growth be possible in a slowing economy?

Also read | Union Budget 2019-20: All You Need to Know

While tax receipts are not expected to show much buoyancy, given that GDP growth in 2019-20 may barely touch 6.5%, the attempt is to raise money through non-tax revenues such as PSU divestment, government asset monetisation and, of course, digging into RBI’s reserves. Clearly, these are one-time measures and can’t be repeated every year.

Another paradox in the budget speech is that it lays a lot of emphasis on capital expenditure to fund growth in infrastructure but the government has actually brought down the capital expenditure in nominal terms from Rs 9.2 lakh crore in 2018-19 to Rs 8.7 lakh crore for the current fiscal. This seems to suggest that much of the growth in borrowings by the Centre and the PSUs on behalf of the Centre, are going towards revenue expenditure.

This is most visible in the agriculture sector where the big increase is almost entirely dominated by PM Kisan income transfer of Rs 87,000 crore and the actual increase in public investment is negligible in real terms. Can income transfer alone substitute for the need to remedy structural issues facing agriculture?

Overall, the budget makes a lot of pious statements but there are too many gaps when you try to look for coherence in the big picture.

Budget 2019 Reeks of a Lack of Real Ambition

While troubles on the low investment are simply assumed away, the silence on major issues like job creation and the viability of agriculture was deafening.

In terms of economic vision, it has always been difficult to make sense of the Narendra Modi government.

The previous five years were hardly inspiring in economic terms: relatively little was done in terms of positive changes to address the major problems in the economy. Most economic policies of the earlier government – including some more problematic ones – were simply continued, often in a renamed or repackaged form, while the regime was punctuated by the twin disasters of demonetisation and the badly botched and rushed implementation of the goods and services tax.

Meanwhile, especially before the general election, the government put its head in the sand and simply denied the most obvious economic problems. It encouraged changes in the estimation of the GDP that were opaque and appeared to be unfortunately partisan, creating scepticism about the reliability of the data within and outside the country.

It suppressed unsavoury economic data like the report of the employment and unemployment survey emanating from its own statistical agency, which showed falling labour force participation especially of women and historically high open unemployment. It refused to admit the problem of low investment rates that were afflicting industry.

It offered a minor sop of cash transfers to some farmers in lieu of addressing their significant and growing problems that had resulted in a year of almost continuous farmers’ protests. Overall, it kept insisting that everything is fine in the economy, despite all evidence to the contrary.

Also read: Union Budget 2019-20: All You Need to Know

Even so, a lot was expected from this first Budget to be presented by the new government. After all, this government now has enormous political capital, having just comprehensively won the recent election, despite all concerns about how that election was run, and so it can afford to announce big policies. Modi had already shown himself to be able to make bold decisions (demonetisation was certainly a bold decision, albeit a crazy and disastrous one).

The prime minister and other government officials have gone on record over the past few days, with extravagant claims of transforming the country through a ten-year vision of a “new India”, in which the size of the economy will supposedly more than double in just five years. (This is what the prime minister’s goal of achieving a $5 trillion size of GDP by 2022 amounts to, even with the optimistic assumption of a stable exchange over the period.)

And there was much talk of blue sky thinking and bold moves to deal with the economic challenges ahead.

So what did the Budget finally deliver on these expectations? In the wake of all the promises, most people were left scratching their heads trying to identify even one big idea or significant move.

Certainly, the silence on major issues like job creation and the viability of agriculture was deafening.

The low investment rate was simply assumed away – in line with government arguments that investment has anyway bottomed out and will now increase. The problems in the banking and non-bank finance sector did get some much-required attention, but the proposed moves are minor and may well be inadequate to deal with the scope of the problem. Despite much emotion expended on small enterprises, there is really nothing that would improve their conditions significantly.

People watch Nirmala Sitharaman’s Union Budget 2019-20 speech at an electronics store in Kolkata. Image: PTI

As has become usual in the last few years, the Budget was extremely optimistic in the matter of estimating future revenues. GST revenues are projected to go up by more than 13% over last year’s receipts, a tall order given the already poor receipts of the first quarter.

There is a sop to the middle classes in terms of the increase in the exemption rate to Rs 5 lakh income per year, which it is claimed will be counterbalanced by slightly higher taxes on the very rich. The Centre has continued to centralise and bypass Finance Commission awards – surcharges and cesses, which do not have to be shared with state governments, are projected to account for around 16% of the projected tax revenues.

On the expenditure side, the lack of action may be even more surprising. The only big increase is on the pre-election scheme of cash transfer to farmers, the PM-KISAN, which will eat up Rs 75,000 crore. Infrastructure development is supposed to be a big priority of this government, but only the railways gets a reasonable additional allocation of just under Rs 13,000 crore (leaving out the high hopes of vast amounts to be raised through Public-Private Partnerships).

Also read: Union Budget 2019: Fiscal Deficit Target for FY’20 Pegged at 3.3%

Road transport and highways get an increase of only 5.6%, barely keeping pace with projected inflation, while rural development fares even worse, with an increase of less than 5%.

Other social sector spending mostly just about increases in line with the increase in nominal GDP, in other words remains around the same. The absence of any mention of the supposedly flagship Ayushman Bharat health insurance scheme in the Budget speech fits with its absence in the detailed budget papers, but it is no less surprising for that.

Instead, the Rashtriya Swasthya Bima Yojana – which was supposed to be rendered defunct by the new scheme – has seen its tiny allocation increase from Rs 2,770 crore to Rs 6,656 crore – a tiny drop in the ocean of the projected requirement. As it happens, I am not an admirer of this scheme, which seeks to substitute two layers of private providers for a better funded public delivery scheme. But does the lack of outlay suggest that the government is also no longer so enamoured of this scheme?

The surprise, then, is in the lack of ambition.

But perhaps this confirms something that became quite clear before the elections: this is a government that is less interested in improving people’s economic conditions than in capturing people’s hearts and minds for its own goals.

That is why one of the chapters in the Economic Survey, when combined with the new “ease” of taxation using only Aadhaar as announced in the Budget speech, should give us all pause. For those of us worried about the possible abuse of Big Data, its forthcoming marriage with Big Brother, as indicated by this Budget, may be the single most important indicator of the future intentions of this government.

Jayati Ghosh is a professor of economics at Jawaharlal Nehru University.