Tag: budget 2020 date india

Nirmala Sitharaman Has Given us a Lacklustre Budget, Aimed Not at Growth or Welfare

The government’s budgetary calculations have been adversely hit. The lack of financial resources completes the circle for a government which, in the first place, is unwilling to invest for the revival of the economy.

Having been in dire straits for a better part of the current fiscal, the Indian economy needed the Union finance minister to provide the much-needed impetus through her second budget.

Unfortunately, the Union Budget of 2020 turned out to be an exercise of laissez faire, something that the Economic Survey had so glibly spoken about.

The government did not show interest in making any interventions and instead showed its unwavering faith on the market forces to turn the economy around. This is despite the fact that the demand compression being faced by the economy has too severe for the private investors be interested in putting their money.

A few months ago, the finance minister had disregarded this reality when she offered the largesse of a substantial cut in corporation tax, expecting that the corporates would respond to this “incentive”.

Also read: Explainer: Will Nirmala Sitharaman’s Corporate Tax Cuts Save India’s Economy?

The corporates never responded, but the government’s budgetary calculations have been adversely hit. The finance minister has informed us that the gross tax revenue for the current fiscal is expected to be below the budgeted figure by over 12%, which is largely due to the 20% decline in corporation tax receipts on account of the tax concessions granted to the corporate sector.

Indirect taxes have also been down as the sluggishness of the economy has affected collections of both the goods and services tax (GST) and import duties.

The capital non-debt capital receipts are also down as the proposed disinvestments have fallen short by over 38%. Which means that the government has had to borrow heavily to make its ends meet; a move that would increase the already large interest burden.

The lack of financial resources completes the circle for a government which, in the first place, is unwilling to invest for the revival of the economy.

Ever since it took office, the Modi government has relied more on aspirations, on the so-called “feel good” factor, and this Budget is no exception. The serious downside of putting forward only “aspirations” instead of concrete programmes that can also be implemented successfully, is already being experienced by the stuttering economy.

So, what are the new set of aspirations?

The finance minister has chalked out plans for an “aspirational India” in three important areas: agriculture irrigation and rural development; wellness, water and sanitation; and education and skills.

When it comes to agriculture, the “aspiration” is to double farmers’ income by 2022 by making farming competitive and by liberalising farm markets. This is the most vacuous of all aspirations as it is completely unhinged from the reality. In the midst of the farm distress that is strewn all over the country, the finance minister has put forth a 16-point programme, with scant additional allocation of resources to implement it.

Also read: Budget Fails Yet Again to Present a Roadmap to Increase Rural Demand, Double Farmers’ Income

Funds allocated to agriculture have increased by a mere 4% over the budgeted figure of 2019-20.

For this critical sector, the capital expenditure is projected at only Rs 50 crores, and this when the government has increased capital expenditure by 22% and is expected to be Rs 4,12,085 crores. In other words, a sector that directly and indirectly supports about 60% of the livelihoods in the country gets 0.01% of the capital expenditure from the Union Budget.

How can the farmers ever expect a doubling of their incomes with hardly any capital expenditure by the government?

Education is another area where the aspirations have been laid out and like in agriculture, the government has not backed its aspirational plans with any significant commitment in terms of resources. In case of primary education, an area in which the government has the responsibility to implement the Right to Education Act (RTE Act), provisioning of funds has been far lower than necessary.

Funding for the flag-ship scheme for implementing the RTE, the Samagra Shiksha, which has replaced the Sarva Shiksha Abhiyan, is proposed to be increased by only 7% over the budgeted figure of 2019-20. For the school education sector as a whole, the projected increase is even lower. It must be pointed out here that the revised estimates for the current fiscal show that the projected expenditure for the year would not be spent.

What is then the guarantee that the projected 7% increase would be spent on this scheme when the government is struggling with resource constraints?

The case of higher education is even more shocking. The projected increase in expenditure is only 3%, which only confirms the suspicion that the government is heading for privatisation of higher education. It is because of this apathy of the government towards higher education that in this country, which has the largest young population in the world, only one out of every four young people can take admission in a college.

Also read: The Good, the Bad and the Impossible of the 2020 Union Health Budget

And, finally, for the health sector additional resources allocation for 2020-21 is just 4% over the budgeted level for the current financial year. Although the government has claimed that the Ayushman Bharat programme has been a huge success, the rising disease burden that the citizens of the country does not bode well for the future of the country.

What could the finance minister have done instead to revive the economy and to address some of the most serious pain points facing the citizens?

Clearly, she could have put in more resources for this could have been both welfare as well as growth enhancing. Take for example education and health. In case of education, effective implementation of the RTE Act would need several lakhs of teachers to be given employment.

Similarly, implementing a model of inclusive higher education system would require new colleges and therefore employment to the lakhs of the highly qualified unemployed.

In the health sector, focus on setting up primary health centres and government funded hospitals can made healthcare affordable, besides bringing in lakhs of health workers. This, of course, requires the political will to get involved in making the lives of the citizens of the country better and to see them gainfully employed.

But, with its current focus on market orientation, this government cannot be expected to deliver better days for its citizens. 

Biswajit Dhar is a professor at the Centre for Economic Studies and Planning, Jawaharlal Nehru University.

Budget 2020: Does the Govt Intend to Reduce Coverage Under the Food Security Act?

Is the government considering an increase in issue price? The budget gives no indication of this.

The year 2020 will be the first full year of the Modi 2.0 government. It is also a rare year in which the government will not have to face any major election other than the one at Delhi.

With economic growth hovering around just 5%, economists had been expecting deep reforms, especially those relating to subsidies in the Union budget. 

The Economic Survey of 2019-20 devoted a full chapter, ‘Undermining Markets: When Government Intervention Hurts More Than It Helps’, to the need for reduced government intervention. The budget presented on February 1 has not taken cognisance of the recommendations for the food and agriculture sector. But, there could be a hidden signal for things to come.

Among all the programmes affecting farmers, the largest allocation has always been for food subsidy which is provided in the budget of the department of food and public distribution.

This subsidy has seen a massive almost Rs 70,000 crore reduction in allocation this budget to Rs 1.15 trillion against the expectation of Rs 1.84 trillion for 2019-20. In the current year itself, the revised estimate of food subsidy has reduced to Rs 1.08 trillion. 

Also read: Budget Fails Yet Again to Present a Roadmap to Increase Rural Demand, Double Farmers’ Income

This is the subsidy provided to Food Corporation of India and state governments (of decentralised procurement states like Chhattisgarh, Madhya Pradesh, Odisha, Andhra Pradesh, and so on, for procurement of wheat and paddy at minimum support price and its distribution under the public distribution system.

For the first time, the government has acknowledged the use of extra budgetary and other resources like National Small Savings Fund (NSSF) for meeting the requirement of food subsidy. FCI has unpaid bills of Rs 1.8 trillion and lower provision of food subsidy in 2020-21 means that the government will be looking for options other than borrowing from NSSF at 8.4% interest to reduce the burden of food subsidy.

Someday, the government will have to pay to FCI to clear the dues of the NSSF.

The economic survey recommended that the centre may reduce coverage under National Food Security Act for highly subsidised grains (Rs 2 per kg for wheat and Rs 3 per kg for rice) from about 70% of the population to bottom 20%.

For the rest, the survey proposes linking of issue price to MSP. Similar recommendation to reduce coverage under NFSA to 40% of the population was made by Shanta Kumar Committee (2015) set up in Modi 1.0 but no action was taken by the government.

So, is the government considering reduction in coverage and increase in issue price? The budget gives no indication of this but it is possible that the government may bite the bullet and reduce coverage under NFSA. 

However, if that’s done it will be at odds with the government’s policy of expanding the coverage of its procurement programme at minimum support prices. 

Farmers carry cabbage from their field on the outskirts of Amritsar, Saturday, February 1, 2020. Photo: PTI

In Kharif 2018, the MSP for common variety of paddy was increased by 12.9%. As a result, rice procurement in 2018-19 (October-September) reached an all-time high of 44 million tonnes.

In the last 14 years, paddy procurement has expanded from traditional states of Punjab and Haryana to Odisha, Madhya Pradesh, Chhattisgarh, West Bengal, Andhra Pradesh, Telangana and Tamil Nadu also. It is therefore unlikely that the Centre can unilaterally reduce procurement of rice, after persuading the states in the last 14 years to join decentralised scheme of procurement under which the responsibility for procurement, storage, movement and distribution under PDS is borne by the state itself. 

What is however possible and highly desirable is to reduce procurement of rice in water stressed districts of Punjab and Haryana. The finance minister has also announced that comprehensive measures will be taken in 100 water stressed districts.

Similarly, after the food crisis of 2005-06, the government launched the National Food Security Mission and persuaded the states to increase procurement of wheat.

In addition to traditional wheat procuring states of Punjab and Haryana, Uttar Pradesh, Madhya Pradesh and Rajasthan have emerged as major states for wheat procurement. It is possible to move some wheat area in Punjab, Haryana and Rajasthan to rabi oilseeds but it will require some direct support to farmers to compensate for losses in initial years. 

Also read: Why Nirmala Sitharaman’s New Income Tax Rates May Not See Widespread Adoption

But, the reality also is that given the employment crisis and declining wages in rural India, the government will find it very difficult to go by recommendation of economic survey for restricting NFSA coverage to just 20% of the population. 

The second major item of subsidy for agriculture is fertiliser subsidy for which BE for 2020-21 is lower by Rs 8687 crore as compared to budget expectation for 2019-20. Fertiliser industry has pending bills of Rs 39,100 crore and so far, PSUs in fertiliser sector have not accessed NSSF.

In fact Modi 1.0 had decided to revive urea plants at Gorakhpur, Sindri, Talcher and Barauni at a cost of Rs 39,651 crore. A gas pipeline is being laid by oil PSUs for these plants.

Retail price of urea in India is about the cheapest in the world. Payment of urea subsidy to farmers through direct benefit transfer has been under consideration of the government for several years but no consensus has been reached with the state governments as any DBT will only reach land holders but tenant farmers will have to buy urea at market price. 

Reduced allocation for fertiliser subsidy will further erode profitability of companies. It is possible that the government is considering deregulation of prices and payment of subsidy to cultivators directly. For this a massive programme of recording tenancy is necessary. But, as we have seen with PM Kisan exercises of this kind are not easy to implement. 

Overall, it appears that the reduction in allocation in the budget of 2020-21 for these two major subsidies may not mean that the government is moving towards major reform of food and fertiliser subsidies. 

Siraj Hussain is Visiting Senior Fellow, ICRIER. He retired as Union Agriculture Secretary. 

Missing and Wanted in Budget 2020 – a Boost for India’s Economy 

The budget needed to step up infra expenditure in rural areas and also boost agriculture expenditures. Without this, growth cannot turn around.

The Union Finance Minister’s speech on Saturday was as long as the crisis of the Indian economy is deep.

Be that as it may, the moot point is, will it help resolve the crisis in the Indian economy? That is what was expected.

Even officially, it is now admitted that the rate of growth is the lowest in the last one decade, after the year of the global financial crisis. All signs currently are that the economic situation is much worse than it was in 2008.

At least then the rate of growth was high (at 8%) and the fiscal deficit was low (at 3%) which gave enough fiscal space to boost the economy. Now the fiscal space does not exist.

It was expected that the budget for 2020-21 would somehow give a boost to the economy. But the budget speech does not give the confidence that the crisis confronting the economy will be tackled.

The length of the budget speech is an attempt to show the public that the government is on top of the situation facing the economy. The speech started by arguing that the macro parameters are all robust; so no crisis. If that is the case, then no big steps are required to be taken; and that is the case with the budget. 

This is possibly only the public face of the budget since most people only look at what is in it for them. They do not analyse what it may mean as a whole – people are micro thinkers and not macro analysts.

The length of the budget speech is an indication that internally the party in power is aware that various sections of the population are hurting and it is necessary to try to cater to them – marginalised sections – farmers, MSME, middle classes, domestic producers, businesses and so on. That is why the FM started by talking about a ‘caring’ society. 

Also read: Budget Fails Yet Again to Present a Roadmap to Increase Rural Demand, Double Farmers’ Income

In a budget of about Rs 30 lakh crore or 13.3% of GDP, there is enough money to give something to all sections and all sectors. But the issue is will there be enough money for all the big announcements.

The government maintains that it will double farmers’ incomes by 2022. It assures that it will achieve the target of Rs 104 lakh crore for infrastructure investment. It continues to talk about achieving a $5 trillion economy.

Eventually that will happen but the issue is whether it would happen by 2024?

Nirmala Sitharaman presents the Union Budget 2020-21 in the Lok Sabha, in New Delhi, Saturday, Feb. 1, 2020. Photo: PTI

When the current rate of growth is only about 4% and not even 5% assumed in the budget and that too is only the rate of growth of the organised sector, how will an average rate of growth of 12% be achieved? Starting at this low rate, in 2024-25, the rate of growth would have to be 19%, an impossibility.

How will the rate of growth stop declining and the economy turn around? Last year the rate of growth projected for 2019-20 was 12% nominal with a real rate of 7%. Now it turns out to be 7% and 5% respectively. Just like these projections have turned out to be incorrect, now too the projected rate of growth of 10% nominal and 6% real for 2020-21 would not be achieved, till the problem is frontally confronted.

Also read: Budget 2020 Sidesteps the Question of What the Govt Should Do to Revive the Economy

The fiscal deficit in the budget was fudged for 2018-19 and again in 2019-20. It must reflect the real deficit consisting of the Centre’s deficit and that of the public sector. As the CAG pointed out last year, if the two are added, then the deficit would be more like 5.8% and not 3.4%. The same is the situation in 2019-20.

This brings one to the issue of transparency of budgetary numbers.

The expenditures may be shown to be higher and so that the fiscal deficit does not go out of line in the budget print, revenues are also shown to be higher. But, during the year, as revenues fall short because the growth assumed is incorrect, the fiscal deficit starts to balloon in spite of the expenditure compression, then expenditures are further cut back and that then leads to further demand shortage.

The revenue shortfall also impacts the states since they get less of transfers than they could have got and they also are forced to cut back and that further aggravates demand problem.

The Budget Estimate for 2019-20 for revenue was Rs 24.6 lakh crore but the Revised Estimate shows Rs 21.6 lakh crore. A short fall of Rs 3 lakh crore or about 12%. Collection of all taxes are less than what was projected last year.

So, expenditures had to be cut back. Given that private consumption has been adversely impacted and investment rate has continued to fall, it was expected that the government expenditures would give a boost and that was also cut back from the expected figure so that it aggravated the demand problem. In 2020-21 too, if the rate of growth of the economy continues to fall, revenues will be less and expenditures may again have to be curtailed.

Also read: Why Nirmala Sitharaman’s New Income Tax Rates May Not See Widespread Adoption

Another source of spending for the government is the Internal and Extra Budgetary Resources (IEBR). This has been rising and that is also the case in 2019-20.

From the budget estimate of Rs.4.44 lakh crore it has gone up to Rs.6.22 lakh crore in the revised estimates, a rise of 40%. This strains the PSUs. Disinvestment can also be sued to raise funds. For 2020-21 the disinvestment target has been raised from the revised estimate of Rs.65,000 crore for 2019-20 to Rs.2.1 lakh crore.

LIC shares are to be sold as a big ticket item. Just like, in 2019-20, will such a big target be achieved? There are many a slip between the cup and the lip. How much dividend will the RBI be asked to give to the government is another matter. If these targets are not achieved, there will be further slippage. 

The problem of demand emerged from the unorganised sectors of the economy.

That is where the expenditures needed to be boosted. MGNREGS which gives employment to the unorganised is being cut back from a revised estimate of Rs 71,000 crores to Rs 61,000 crores.

Since 100 days of work is not being made available under the scheme, this needed to be stepped up rather than cut back. Similarly, the expenditure on agriculture and allied activities was slated to be Rs.1.5 lakh crore but what is being spent it Rs.1.2 lakh crore (20% short) now it is slated to be Rs 1.55 lakh crore (in 2020-21).

This year, rural development spending is Rs.1.43 lakh crore and next year it is going to be Rs.1.45 lakh crore; almost static. Thus, there is hardly any increase in expenditures on agriculture and rural areas even though the budget speech made out that there is a big step up.

A big boost here would have boosted demand in the economy.

In brief, to boost the economy, the budget needed to step up infrastructure expenditures in rural areas and also boost the rural and agriculture expenditures but none of this is happening so that the boost expected is not likely to materialise and growth will not turn around so that the budget figures will again suffer the same fate as in 2019-20. 

Arun Kumar is Malcolm Adiseshiah Chair Professor, Institute of Social Sciences, and author of Ground Scorching Tax, Penguin Random House.

How Many People Will Benefit From Nirmala Sitharaman’s New Income Tax Rates?

If you have an annual income of over Rs 10 lakh and deductions of more than Rs 2 lakh, you’re probably going to want to stay in the old tax regime.

New Delhi: Finance Minister Nirmala Sitharaman on Saturday introduced India’s first ever dual income-tax system by announcing the introduction of a new optional scheme in which taxpayers can opt for reduced rates if they give up most deductions and exemptions.

In her speech, Sitharaman spoke how about how complying with the country’s income-tax law has become “burdensome” and “almost impossible” for most people, without taking the help of a professional chartered accountant.

Unfortunately, the new system hasn’t made things a lot easier.

It actually introduces three more slabs and will force (mostly young) taxpayers to think through a complex trade-off of saving for the future versus having a little more cash to spend in the present. 

The finance minister says all Indian taxpayers will be allowed to choose between the old regime or the new one. From her remarks though, it seems that over the next decade, the plan is to migrate everyone as the government seems intent on removing the numerous exemptions and deductions that have been added to India’s income tax code over the last three decades. 

What are the new tax slabs?

Sitharaman’s new system comes with six different slabs, starting from Rs 2.5 lakh and going up to Rs 15 lakh. The table below gives you a quick snapshot of the slabs under both the systems.

Tax Slabs (Annual Income) ‘Old’ System ‘New’ System
< Rs 2.5 Lakh Exempt Exempt
Rs 2.5 lakh to Rs 5 Lakh 5% 5%
Rs 5 lakh to Rs 7.5 Lakh 20% 10%
Rs 7.5 Lakh to Rs 10 Lakh 20% 15%
Rs 10 Lakh to Rs 12.5 Lakh 30% 20%
Rs 12.5 Lakh to Rs 15 Lakh 30% 25%
> Rs 15 Lakh  30% 30%

Even a brief look at the table will tell you that the rates announced by Sitharaman are a big improvement, which is what sparked the initial excitement.  The catch, of course, is that the new system bans most of the major deductions and exemptions allowed under Chapter VI A of the Income Tax code and even a few other popular ones.

The ones that most people use to reduce their income tax burden are deductions under Section 80 C, which has a limit of up to Rs 1.5 lakh for investments made towards ELSS, PPF, LIC etc. 

Also read: Sitharaman Misses the Chance to Exploit the Full Potential of a Higher Fiscal Deficit

Other important ones include interest paid on housing or education loans, health insurance premiums (Section 80 D), home rent allowance (HRA) deductions and donations made to charitable institutions or political parties (Section 80G). The new system also doesn’t allow the ‘standard deduction’ of Rs 50,000 that allows all taxpayers to reduce their tax outgo.

Since none of these are allowed, it seems intuitive that if you have more than one deduction – or if your deductions add up to more than Rs 2 lakh – it’s  less likely that you will want to shift to the new tax regime. This isn’t set in stone of course, and a lot of it depends not only on your annual income, but also your age and family situation. 

Let’s take a few hypothetical examples below – with differing annual incomes and a range of deductions – and see how they fare under both systems.

Table 1: Are the New Income Tax Rates Better?

Person Annual Income Deductions Tax to be Paid in Old System*  Tax to be Paid in New System*
Abhishek Rs 7,50,000  Rs 1,50,000  Rs 33,800 Rs 39,000
Manoj Rs 9,00,000 Rs 2,35,000 Rs 48,360 Rs 62,400
Lakshmi Rs 10,00,000 Rs 1,50,000 Rs 85,800 Rs 78,800
Tejas Rs 15,00,000 Rs 3,00,000 Rs 1,79,400 Rs 1,95,000
Rakesh Rs 6,00,000 Nil Rs 33,800 Rs 23,400

Source: Author’s calculation. *Figure includes Cess of 4% that is applicable.

As you can see, having more deductions or exemptions usually results in a better deal under the old system. People like Abishek, Manoj and Tejas would prefer not to take up Sitharaman’s proposal. They are taxpayers who would typically have investments under Section 80C or are paying off a housing or education loan. 

People like Rakesh, who earn Rs 50,000 a month, could potentially benefit from the new scheme. It’s not inconceivable that a person in this income-category would have no deductions to make, leaving him worse off under the old system.

Also read: Budget 2020: Trickle Down Economics Will Fail Like Always

However, the moment you add a standard deduction of Rs 50,000, which is available to all taxpayers as of last year’s Interim Budget last year, and a home rent allowance (HRA) of Rs 85,000 per annum, the old system automatically becomes much better for Rakesh. (This hypothetical scenario doesn’t even consider the rebate of Rs 12,500 you get if your taxable income is Rs 5 lakh, which would further tip the scales against the new system).

The other interesting example is that of Lakshmi, who earns Rs 10 lakh and has deductions of only Rs 1,50,000. The new system, which ignores deductions, is a better option for her. The question to be asked here though is how many people who earn Rs 10 lakh per annum currently have deductions/exemptions of only Rs 1.5 lakh? Is it a significant number of taxpayers?

In Lakshmi’s case as well, as the table below shows, if she increases her deductions to Rs 2 lakh, the older system once again looks like the better option.

Table 2: Tweaking the Deductions

Person Annual Income Increased Deduction Total Tax to be Paid in Old System Total Tax to be Paid in New System
Rakesh Rs 6,00,000 Rs 1,35,000 Rs 10,750 Rs 23,400
Lakshmi Rs 10,00,000 Rs 2,00,000 Rs 75,400  Rs 78,000

How many could shift?

It’s clear that that Sitharaman’s tax regime is more suited for people who either have very few deductions on one hand, or own their own homes and have lower Section 80 C deductions because they have a different investment strategy on the other.

Another interesting question to be considered is whether the new system changes the way people view their tax-saving investments. Put simply, what if people decide its a better idea to simply stop the investments that they were hitherto making solely to lower their income tax burden and move to the new regime? For example, what if Lakshmi (in Table 1) decides to stop the Rs 1.5 lakh in deductions that she was getting by investing in, say, a tax-saving mutual fund. She could then decide to spend some of the extra money she would get by moving to the new regime and put the rest of it in a regular (non-tax-saving) fixed deposit. It will be fascinating to see how this affects taxpayer behaviour at a national level, provided the government chooses to reveal this data.

We know that India collects roughly Rs 3 lakh crore from individual tax-payers and that the average salary income in AY’19 stood at Rs 6.9 lakh. We also know that the finance ministry believes its move will result in a loss of Rs 40,000 crore in revenue to the government. But none of this tells us how many people will actually benefit from the new income tax system. 

At the moment though, most taxpayers who have spent years carefully planning how to best  reduce their income tax burden are unlikely to jump ship to Sitharaman’s dream of a deduction-free future.

Budget 2020: Trickle Down Economics Will Fail Like Always

In the backdrop of an economic slowdown, the rich are more likely to add to their financial savings rather than invest or consume.

The Economic Survey presented ahead of the Union Budget has already exposed the severity of the slowdown afflicting the Indian economy. GDP growth has dipped to 5% in 2019-20, the lowest since the global recession of 2008-09, with slowdown gripping all the sectors of the economy – industry, services as well as agriculture. The investment rate has fallen by 1.2% of GDP from last year. Bank credit growth has also decelerated for industry and services, especially MSMEs.

The Union Budget 2020-21, presented in the backdrop of this deteriorating economic situation, reveals a massive Rs 2.97 lakh crore shortfall in gross tax revenues in 2019-20 (RE) compared to the last year’s budget estimates. The drop in gross tax revenues to 10.5% of GDP in 2019-20 (RE), the lowest since 2014-15, follows the major cut in the corporate tax rate announced in September 2019, which has brought the Indian tax rate below that of ASEAN economies like Indonesia, Malaysia and Philippines. The Budget has followed the same principles of “trickle down” economics to cut income tax rates on earnings up to Rs 15 lakh per annum and removed the dividend distribution tax on companies, which account for a combined projected revenue loss of Rs 65,000 crore per year.

Finance minister Nirmala Sitharaman obviously thinks that such tax cuts for large corporates and affluent sections would translate into higher investment and consumption demand, thus stimulating the economy. However, this assumption of “trickle-down” is neither based on sound economic theory nor empirical evidence.

In the backdrop of an economic slowdown, the rich are more likely to add to their financial savings out of their additional income through direct tax breaks, rather than invest or consume. Rather than giving tax breaks, had public expenditure been incurred of the same amount on social welfare programmes or creating physical infrastructure, the money would have reached the hands of the poorer sections of society, who have a higher propensity to consume.

Also Read: Budget 2020 Sidesteps the Question of What the Govt Should Do to Revive the Economy

The Budget has walked in the opposite direction, by cutting Rs 75,532 crore from the food subsidy Bill in 2019-20 (RE) and Rs 9,502 crore from the MGNREGA in 2020-21 (BE). Making a mockery of the prime minister’s announcement of Rs 100 trillion investment in infrastructure in the next five years, the Budget allocated a meagre Rs 22,000 crore for infrastructure finance companies.

The expectation of an effective fiscal stimulus from the Union Budget thus stands belied. Contrary to the claim made by the finance minister, the minor increase in the fiscal deficit will only bolster the wealth of high net worth individuals rather than enhancing capital expenditure and creating jobs. Moreover, in the likely absence of any significant growth recovery in 2020-21, revenues from direct taxes and GST may once again fall below budget estimates. This will necessitate further expenditure compression, unless the government abandons the irrational pursuit of fiscal consolidation amidst a severe economic slowdown.

The Budget also misleads on the state of the financial sector, by exuding complacency. The latest Financial Stability Report of the RBI released in end-December 2019 has already reported a reversal in the trend of NPA reduction in the scheduled commercial banks, especially the PSBs. Not only has the IBC regime failed to bring about effective resolution of the stressed assets in the banking system, the bursting of the NBFC credit bubble has added fresh woes. Incidences of bank frauds have also hit a record high, with Rs 1.13 trillion being ripped off the banking system in the first six months of 2019-20.

Rather than addressing such corporate criminality, the government appears to be in a selling spree of public assets, budgeting a record Rs 2.1 trillion as disinvestment receipts for 2020-21, including Rs 90,000 crore estimated for the PSBs and the LIC. Gambling with the stakes of the public sector financial entities at a time of economic distress, in order to meet revenue shortfalls, is the most retrograde aspect of this thoroughly disappointing budget.

Prasenjit Bose is an economist and political activist.

Sitharaman Misses the Chance to Exploit the Full Potential of a Higher Fiscal Deficit

IT remains a genuine confusion as to whether invoking “escape clause” to deviate from the fiscal consolidation path is in response to the unanticipated outcome of structural policy announcements or whether it is for increasing capital spending.

Economists often push the idea that strict adherence to fiscal rules is growth-inducing. However, empirical evidence suggests that it is unwise to be a “fiscal hawk” in times of serious economic slowdown. 

After all, there are irreversible economic costs to strict fiscal prudence. This is the significant economic policy prescription that finance minister Nirmala Sitharaman missed to explore to its full potential in her Union Budget 2020, which was supposed to revive demand and reverse the economic slowdown.

The potential of a fiscal tool in triggering the economy is also often better done through the expenditure side rather than lowering rates of taxation. For instance, Budget 2020’s ‘lower tax rates sans exemptions’ policy is complicated. This is not a simplification of tax structure. It is complicated in its nature as it will lead to a concern (“nudge”) in an Indian taxpayer over which is higher, the propensity to “save” using exemptions or “spend”? 

Last year’s announcement of lowering corporate tax rates – the statutory rates – to 15% for those firms who forgo exemptions also may not result in intended benefits as the firms do enjoy an effective tax rate of around 20% even with exemptions. However, it is an empirical question and we need to wait for the evidence on how Indian companies end up acting.

Also Read: Budget 2020 Sidesteps the Question of What the Govt Should Do to Revive the Economy

If the intention of the government is putting more money into the hands of people to revive demand or to boost “sentiments”, it would have been better off by strengthening public expenditure policies. The budgetary allocations of ‘employer of last resort’ policies (MNRGEGA) and wage boost policies are significant among these policy priorities to boost demand.

Is fiscal prudence growth-inducing? 

More often than not, fiscal consolidation is attained by retrenchment of public spending and not increased tax buoyancy. This has severe negative growth consequences. The International Monetary Fund (IMF) has recently slashed India’s forecast to 4.8% in 2019-20, a reduction of 1.3% within three months. Against the backdrop of the World Economic Outlook (WEO) released in Davos, Switzerland, IMF chief economist Gita Gopinath said that the economic slowdown in India has pushed down global growth forecast by 0.1%. When there is an increasing recognition that India is a “drag” on global growth, from the position of fastest growing economy a few years ago, it is high time to come out of a mode of “denial” and to float appropriate macroeconomic tools in action. However, the Union Budget has missed the chance to act judiciously to explore the power of appropriate “fiscal policy tools” to revive growth. 

It is interesting to recall here that the IMF Article IV consultation report 2019-20 for India is also equally confusing when India is advised to use monetary policy to address economic growth downturn while strictly adhering to fiscal consolidation path. There is a shadow of these new macroeconomic policy consensus in the Union Budget 2020. This macroeconomic policy uncertainty affects economic growth further – unless we correct for it – and especially when the cuts in policy rates by Monetary Policy Committee (MPC) has consistently failed to trigger economic growth. 

From being the fastest growing economy a few years ago, India has now been recognised as a drag on global economy. Photo: Reuters/Rupak De Chowdhuri

Invoking the ‘escape clause’ of FRBM

The finance minister also announced today that India has gone for a fiscal deficit – GDP threshold of 3.5% (instead of 3%) for the next fiscal and that it is strictly within the purview of the new Fiscal Responsibility and Budget Management (FRBM) Act, incorporated in the Finance Bill 2018.

She was referring to the “escape clause” embedded in the Act, to have flexible upper bound of deficit-GDP ratio under special circumstances. Sitharaman quoted from the Section 4 (2) of the FRBM Act, which provides for a trigger mechanism for a deviation from the estimated fiscal deficit on account of structural reforms in the economy with unanticipated fiscal implications, and justified why she has taken a deviation of 0.5%. The minister re-confirmed that it is consistent with Section 4(3) of FRBM Act, both for RE 2019-20 at 3.8% and BE 2020-21 at 3.5%. 

Subsequently, the net market borrowing net market borrowings for the year 2019-20 would be Rs 4.99 lakh crore and for the year 2020-21, it would be Rs 5.36 lakh crore. The revised path to fiscal consolidation is incorporated in the ‘Medium Term Fiscal Policy cum Strategy Statement’ which was tabled in the Parliament on Saturday, where one gets a cue that a significant part of the market borrowings for the financial year 2020-21 would go financing the capital expenditure of the government which has been mentioned to have scaled up by more than 21%. 

It remains a genuine confusion as to whether invoking “escape clause” to deviate from the fiscal consolidation path is in response to the unanticipated outcome of structural policy announcements the government has made or whether it is for increasing capital spending for the economy. Nevertheless, the renewed emphasis on capital formation – especially infrastructure investment – is welcome. 

In addition to this announcement, the Union Budget also has mentioned allocation of Rs 22,000 crore for equity to fund certain specified infrastructure finance companies, who would leverage it manifold and provide much needed long-term finance to Infrastructure sector to spurt the economic growth. 

New FRBM and the Anatomy of Revenue Expenditure 

Having said that, it is significant to examine the anatomy of India’s revenue expenditure. If invoking the “escape clause” is linked to forward looking strategies to increase capital formation, then India needs to maintain the “golden rule” of fiscal rules that revenue deficit is zero. The New FRBM 2018–19 mentioned that “in the proposed FRBM architecture, Government will simultaneously target debt and fiscal deficit, with fiscal deficit as an operational target and do away with the deficit targets on revenue account that is revenue deficit (RD) and consequentially, effective revenue deficit (ERD).” 

Also Read: Sitharaman’s ‘Budget of Giveaways’ Will Not Help India’s Broken Economy

This “non-zero Revenue Deficit” is dangerous especially when the escape clause is invoked. The golden rule is to prevent fiscal profligacy and to imply a hard budget constraint on government to prevent the use of borrowed resources for the purpose of recurrent spending including wages and salaries, interest payment, pension and subsidies. However, with the simultaneous situation of invoking escape clause to raise the threshold fiscal deficit ratio to GDP and having a non-zero revenue deficit can be tricky. 

Ex-post to the new FRBM in 2018, with no target, revenue deficit has increased stubbornly high to 2.4% in 2019-20 and would be at 2.7 % of GDP in 2020–21. The anatomy of revenue expenditure reveals that Centre intends to spend on interest ( 23.28 %) and defence (10.62) highest and for other components (refer Table 1). There is also deviation between BE and RE figures (as reflected in the ratio of BE/RE for the year 2019-20) in the components of revenue expenditure. This deviation between BE and RE is referred to as “fiscal marksmanship” and it is perfect only if the value is 1. 

Table 1: Anatomy of Revenue Expenditure 

  2018-19Actuals 2019-20BE 2019-20RE 2020-21BE Fiscal Marksmanship 

BE/RE 2019-20
Pension 6.92 6.26 6.82 6.93 0.95
Defence 12.56 10.96 11.72 10.62 0.97
Subsidy – 0.00 0.00 0.00 0.00  
Fertiliser 3.05 2.87 2.96 2.34 1.00
Food 4.38 6.61 4.03 3.80 1.69
Petroleum 1.07 1.35 1.43 1.34 0.97
Agriculture and Allied Activities 2.73 5.44 4.48 5.09 1.25
Commerce and Industry 1.20 0.97 1.06 0.89 0.95
Development of North East 0.08 0.11 0.10 0.10 1.12
Education 3.47 3.40 3.51 3.26 1.00
Energy 1.96 1.60 1.57 1.40 1.05
External Affairs 0.67 0.64 0.64 0.57 1.03
Finance 0.64 0.72 0.92 1.37 0.81
Health 2.35 2.33 2.37 2.22 1.02
Home Affairs 4.24 3.73 4.60 3.76 0.84
Interest Payments  25.17 23.70 23.16 23.28 1.06
IT and Telecom 0.64 0.78 0.59 1.95 1.36
Others 3.22 2.75 2.85 2.77 1.00
Planning and Statistics 0.23 0.21 0.22 0.20 1.00
Rural Development 5.74 5.05 5.31 4.76 0.98
Scientific Departments 1.07 0.98 1.03 0.99 0.99
Social Welfare 1.89 1.82 1.79 1.77 1.05
Tax Administration 3.00 4.21 5.09 5.03 0.85
of which Transfer to 0.00 0.00 0.00 0.00  
GST Compensation Fund 2.34 3.63 4.49 4.45 0.83
Transfer to States 5.15 5.58 5.76 6.59 1.00
Transport 6.20 5.65 5.86 5.58 1.00
Union Territories 0.61 0.54 0.56 1.74 1.00
Urban Development 1.75 1.72 1.57 1.64 1.14
Grand Total 100 100 100 100 1.03
Grand Total (in Rs crores ) 2315113 2786349 2698552 3042230

Source: (Basic Data), Union Budget 2020 documents, Government of India 

Financing Pattern of Fiscal Deficits 

The efficacy of invoking “escape clauses” do not remain at levels of deficit, but also at the financing pattern of deficits. Over the years, there has been a shift in financing pattern of fiscal deficits from seigniorage financing to bond financing. With an “escape clause”, there can be a provision for eventual monetisation of a portion of deficits, as it requires a direct seigniorage financing with Reserve Bank of India. Seigniorage is technically the change in high powered money to GDP, which has the potential of inflationary pressures. 

However, such eventual monetisation can happen only if the real rate of growth is less than the real rate of interest (r>g) and results in some unpleasant monetary arithmetic. This also leads an economist to think further what MMT genre of economists who argue whether to go for seigniorage rather than the eventual destruction of the economy through fiscal retrenchment and fiscal rules. Because to them, saying “there is no fiscal space” is a white lie when you have the ability to decide on your seigniorage financing of deficits. Are there any elements of a new macroeconomic thinking towards such “fiscal seigniorage” in the Union Budget 2020?

Budget Fails Yet Again to Present a Roadmap to Increase Rural Demand, Double Farmers’ Income

The focus had to be on providing a fillip to rural incomes as the current slowdown began in rural India and deteriorated after demonetisation.

New Delhi: While the broad consensus among economists was that the government needed to focus on putting money in the hands of those who are at the bottom of the pyramid, the 2020-21 budget has stayed away from making any such commitments.

The focus, in particular, had to be on providing a fillip to rural incomes as the current slowdown began in rural India, with rural wage growth showing a declining trend since 2014, and got particularly severe after demonetisation.

This is crucial too as the government has set itself the ambitious target of doubling farmers’ incomes by 2022 with 2015 as the reference year. But, even the first full budget of NDA 2 in July 2019, did not outline how this was going to be achieved.

The headline allocation for the rural sector in the 2020-21 budget is Rs 2.83 lakh crores, which is only 5.5% higher than the allocation last year and is barely able to keep up with inflation.

The two key schemes in place to provide income support to rural Indians are the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) and the PM Kisan Saman Nidhi (PM Kisan).

Allocation for MGNREGA has been increased by only 2.5% to Rs 61,500 crore while the revised estimate – what the government estimates it will spend by March 2020 – for 2019-20 is Rs 71,000 crore. So, effectively, finance minister Nirmala Sitharaman’s budget has allocated less than what it expects to spend this year.

The finance minister has done the opposite under PM Kisan. In 2019-20, the government expected to spend Rs 54,000 crore till March 2020 against an allocation of Rs 75,000 crore. However, it has again allocated Rs 75,000 crore under the income support scheme.

Also read: With No Big Bang Steps, Budget 2020 Focuses on Untangling the Fiscal Math Mess

As The Wire has pointed out earlier, the scheme has stuttered in the last year and has been only been able to achieve only about 50% of its targets. The budget speech made no mention of addressing the issues which are plaguing the scheme.

“This budget is an opportunity missed. It could have addressed the economic slowdown by providing a roadmap for putting money in the hands of people. But, it hasn’t done that,” said noted agriculture and food policy expert Devinder Sharma.

The 16-point action plan that Sitharaman did announce for the agriculture sector is unlikely to result in any significant increased income in the near future. The plan talks about increasing agricultural credit, increasing food and fisheries production, eliminating foot and mouth disease, incentivising zero budget farming, improving transport facilities for perishable commodities.

Nirmala Sitharaman presents the Union Budget 2020-21 in the Lok Sabha, in New Delhi, Saturday, Feb. 1, 2020. Photo: PTI

While efforts to provide better linkages to the market, such as Kisan udan and Kisan rail, could aid farmers’ incomes from perishable commodities, none of these are likely to raise farm incomes in the short run.

“The 16-point wish list will be a good roadmap for the sector in FY 2021,” said former agriculture secretary Siraj Hussain. But, Hussain said that the wish list was difficult to implement in the short run.

Another farm-based scheme, the Pradhan Mantri Fasal Bima Yojana (PMFBY), which the government had focussed on in the previous years failed to get much attention this time in the budget speech.

The allocation for PMFBY has increased by Rs 1,695 crore to Rs 15,695 crore. But, again, the government has not addressed the issues which ail the scheme. As The Wire has reported, the scheme is of limited benefit to farmers as the claim payments are delayed by months.

PM-Aasha which sought to compensate farmers when they sold their produce at less than MSP has seen a one-third cut in budget allocation, from Rs 1,500 crore last year to Rs 500 crore this year. To put this in perspective, the government estimates that it will spend Rs 4,000 crore on the National Population Register (NPR) exercise.

Also read: Sitharaman’s ‘Budget of Giveaways’ Will Not Help India’s Broken Economy

The cut would have been understandable had market prices been at par with MSPs. But, that has not been the case. The market prices have been consistently lower than MSPs for most crops except for wheat and rice.

“The FM had little elbow room this year. With nominal growth at just about 7.5% and tax collection not likely to meet targets, increase in allocation for agriculture was not expected,” said Hussain.

Given the limited elbow room and the tax revenue shortfall due cut in corporate taxes, GST shortfalls and reduced personal income tax collection due to the slowdown, the government has reduced its allocation for food subsidy by a massive almost Rs 70,000 crore.

“It was last year’s allocation of Rs 1.84 lakh crore that was the outlier. So, now they have gone back to what is the average spend,” said economist Abhijit Sen, a former member of the Planning Commission.

Opposition Says Budget 2020 Does Not Address Unemployment, Slowing Growth

While BJP leaders offered vague praise for the Budget, opposition parties offered concrete criticism.

New Delhi: While most leaders of the ruling Bharatiya Janata Party termed Budget 2020 as “visionary” and “futuristic”, opposition leaders panned it as lacking any concrete ideas to address problems such as rising unemployment and plummeting growth rate.

Soon after Union finance minister Nirmala Sitharaman finished the Budget speech, one of the longest in recent history, the BJP claimed that it addressed development for all sections of the society, on the lines of Prime Minister Narendra Modi’s Sabka Saath Sabka Vikaas slogan.


Within minutes, leaders from the saffron party took turns on Twitter to trend their praise with #JanJanKaBudget. However, not many pointed out why they felt it was visionary or futuristic.

PM Modi congratulated Sitharaman for preparing a Budget which he called was a mix of “vision and action”. He went on to list out new reforms announced in the Budget.


The opposition leaders had concrete criticisms to offer.

Congress leader Rahul Gandhi said, “Our youth want jobs. Instead they got the longest budget speech in parliamentary history that said absolutely nothing of consequence. PM & FM both looked like they have absolutely no clue what to do next.” He said there was no central idea to rid India of unemployment or improve the poor state of the economy.

Former prime minister Manmohan Singh said that the Budget was “too long to absorb”.

Senior Congress leader and former finance minister P. Chidambaram briefed the media after the Budget. He said, “There were multiple themes, segments and programmes, leaving the listener dazed and confused. It was a laundry list of old (that is current) programmes… The government 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.”

Also Read: Budget 2020 Sidesteps the Question of What the Govt Should Do to Revive the Economy

“The Indian economy is demand-constrained and investment-starved. The FM has not acknowledged these two challenges, and that is a pity,” he said, adding that the government was “in complete denial that the economy faces a grave macro economic challenge and the growth rate has declined in six successive quarters.”

“There is nothing in the Budget that leads us to believe that growth will revive in 2020-21. The claim of 6-6.5% growth next year is astonishing and even irresponsible,” he said.

As an advocate of market economy, he lashed out at the government for adhering to protectionist policies. However, he also criticised it for reducing food, fertiliser and petroleum subsidies.

“It appears that the people will not get any relief on the price front. Please remember that CPI inflation is over 7% and food inflation is over 10%,” he said, adding there is no assurance that the finance minister will meet the targets set for 2020-21.

He also said that the government rejected every reform idea contained in the Economic Survey. “Did the FM read the Economic Survey? Was the chief economic adviser privy to the contents of the Budget speech? I think the answer to both questions is in the negative.”

Former finance minister P. Chidambram
Photo: PTI

Government clueless: CPI(M)

Calling the government “clueless” about how to address the current economic crisis, the Communist Party of India (Marxist) said, “…the Modi Government is only interested in providing the corporate sector and the wealthy relief rather than tackling the increasingly grim employment and livelihood situations of the working people – workers, farmers and those forced into self-employment – which is the root cause of the slowdown.”

It said that instead of increasing its social spending to address the demand crunch, the Budget has only aimed at “reducing the fiscal deficit by further slashing government expenditures…the burden of which will be felt by working people.”

“…the expenditures on Central Sector Schemes in 2019-20 has been slashed by 11 per cent and Centrally Sponsored Schemes by 4.5 per cent – covering areas like – food subsidies, agriculture and allied activities, Development of the North-East, Social Welfare, Energy, etc. In the cuts proposed in 2020-21, MNREGA (Rs. 61,500 crore from Rs. 71,000 crore) and fertilizer subsidies are slated to join this list. Even the flagship schemes like PMJAY-Ayushman Bharat, Swachh Bharat and PM-Kisan have suffered major cuts. Allocations for the welfare of scheduled castes and scheduled tribes, already way below the statutory requirements, have been cut in 2019-20. The Gender Budget allocation for 2020-21 similarly shows stagnation,” the Left party said in its statement, also adding that the government manipulated revised estimates of revenue figures.

“Revised Estimates (RE) figures show that the revenue collections in 2018-19 are way below the Budget Estimates (BE), still they underestimate the extent of the shortfall. The RE figures of Central Tax Revenues are incompatible with the actual collections reported by the CGA for April-December of 2019-20. A realistic RE would have shown a further shortfall of close to 1.5 lakh crores in gross revenues from central taxes.”

Also Read: Budget 2020 Fails MGNREGA, Yet Again

Trinamool Congress’s Derek O Brien said that the Budget “takes this country from economic crisis to economic disaster, from the ICU to the ventilator.” He called out the government for putting a cess on health even as there were no relief measures for the poor and unemployed. He said even at the time of such high unemployment rate, funds for MGNREGS was slashed by 13%.

He also lashed out at the government’s proposals to indirectly privatise BSNL and LIC. “More importantly, the LIC sale would be used to compensate the states on GST. What’s going on,” he asked. He also criticised the government’s move to remove at least 70 exemptions that people used to save income tax.


Regional parties like Aam Aadmi Party and Rashtriya Janata Dal hit out at the union government for ignoring the interests of their states.


Akhilesh Yadav of Samajwadi Party said that the Budget does not give any incentives to any section of the society, and would fail to stem price rise.

Budget 2020 Fails MGNREGA, Yet Again

According to the NREGA Sangarsha Morcha, an allocation of a minimum Rs 1 lakh crore is required to ensure a smooth running of the scheme.

New Delhi: Despite an acute funds crunch faced by the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) scheme, the budgetary allocation for the 2020-2021 financial year (FY) has only been increased marginally, from Rs 60,000 crore to Rs 61,500 crore. This increase, however, when compared with the revised estimate of FY 2019-20, is actually 9.1% less. In 2019-20, the revised estimate was Rs 71,002 crore.

For the last few years, rural distress has been visible across India. There has been a sharp rise in the number of people dependent on the rural employment scheme for their sustenance. The Centre, right now, is on the verge of running out of funds to run the scheme.

According to the scheme’s financial statement released last week, as many as 15 states are in the red. According to a report in The Hindu, more than 96% of the allocated money has already been spent or is needed to pay pending dues. Less than Rs 2,500 crore is left to sustain the scheme for the next two months, the report says.

The scheme has to still run on the earlier allocation until March end and the newly announced budgetary allocation will be available only from April 1.

According to the NREGA Sangarsha Morcha, a national platform of workers’ collectives, trade unions, organisations and individuals, an allocation of a minimum Rs 1 lakh crore is required to ensure a smooth running of the scheme.

Also read: Sitharaman’s ‘Budget of Giveaways’ Will Not Help India’s Broken Economy

Explaining the breakdown of the figures and the rationale behind the estimate given by the organisation, NREGA Sangarsha Morcha, in its press note released on January 31, says with a projected labour at 270 crore person and considering Rs. 248 is paid per person per day on an average, an estimated Rs 66,960 crores would be needed to only pay wages. Among other expenditures, there are material components, which the organisation has studied to be around Rs 16,740 crores.

In the last five years, the organisation says nearly one-sixth of each year’s allocation have been pending wage liabilities. “Assuming that the pending wages would be the same proportion going in to FY 2020-21, the component of pending wage liabilities is 79,515/6, which account to about Rs 13,252 crores.” The total expenditure of Rs 92,767 crore and an additional average 10% inflation would amount to about Rs 1,20,050 crore.

Taking the budgetary distributions and the supplementary allocation of funds to the programme for the last few years into account, it can be deduced that though the demand for employment under the scheme has been on a steady rise in the past years, the government has failed to address it fully. This has only added to the pending liabilities.

In its press statement, Peoples Action for Employment Guarantee, a civil society collective has said, “All eyes were on the Union Budget 2020-21 to see how the Central Government would leverage its only legislative mechanism to provide employment and alleviate rural distress i.e. the MGNREGA. And the result has been worse than expected, and deeply distressing.” The statement further points to the BJP government’s decision to reduce the budgetary allocation of MGNREGA by Rs 9,500 crore from its revised estimate of 2019-20. “The reduction in the budgetary allocation is taking place when the minimum allocation needed to protect the MGNREGA as status quo is nearly Rs 85,927 crore.”

Also read: Eight Charts Show the Modi Govt’s Spending Patterns on Flagship Welfare Schemes

Responding to the budget, James Herenj of the Jharkhand NREGA Watch, a civil society initiative floated to ensure efficient implementation of the scheme said, “The budget has not taken the dire requirement of the scheme into consideration. In Jharkhand alone, of the total 26 lakh labourers with active job cards, only about 20 thousand labourers have got 100 days job. This situation will only worsen in the coming years,” Herenj says.

In 2019-20, Herenj said Jharkhand could only ensure an average of 35 days work and around Rs. 83 crores are pending to be paid in wages. “Almost all of those dependent on jobs under the MGNREGA are from Bahujan communities. Like, in Jharkhand, 41% belong to the Scheduled Tribes (ST) and the Scheduled Castes (SC) and the rest are from Other Backward Classes (OBC). This would be the case more or less in every state,” Herenj added.

Finance minister Nirmala Sitharaman took over two hours and forty minutes, the longest speech in 17 years, to present the budget. But the annual outlay for the MGNREGA – the only government programme providing direct employment – was not a part of her speech. Herenj says this pretty much sums up the government’s intention and interest to run the scheme.

Budget 2020 Sidesteps the Question of What the Govt Should Do to Revive the Economy

With this year’s budget, finance minister Nirmala Sitharaman has done very little for either growth or welfare.

Besides its length, finance minister Nirmala Sitharaman’s speech presenting the Budget for 2020-21 was notable for a number reasons. It did not discuss the likely shortfall in revenue collection relative to targets during financial year 2019-20 and what that implies for state action. Much of the speech sounded like it was being made on behalf of other ministries highlighting their ongoing or new programmes, rather than on behalf of the ministry of finance. It did not, when discussing expenditures, refer to the increase in allocations for 2020-21 relative to the budget or revised estimates for 2019-20, but merely quoted absolute figures. And overall, it spent time highlighting selected individual projects but provided no macroeconomic vision.

Make no mistake, these features were omissions and postures that served a purpose. The minister wanted to side-step the crucial question that was being posed by circumstances: what does she intend to do to revive an economy that had lost momentum and seems on course to experience a further fall in its rate of growth.

Finance minister Nirmala Sitharaman is flanked by junior finance minister Anurag Thakur as she arrives to present the budget in Parliament in New Delhi, February 1, 2020. Photo: REUTERS/Altaf Hussain

The concern is not only with GDP growth. While even prior to 2019-20, demonetisation and the GST roll-out had damaged the informal sector and the employment situation was dire, the effects of demand compression had begun to tell on the formal corporate sector as well in this financial year. This had set off a vicious cycle of low growth-low receipts-low expenditure and even lower growth. Stepping up demand was crucial and the budget was expected to play a role.

It appeared initially that the Budget could pull off a stimulus. Two numbers stand out. The first is the government’s expectation that it would see an increase in its non-tax revenues from communication services, from Rs 59,000 crore in 2019-20 to Rs 1,33,000 crore in 2020-21. This is because of the Supreme Court judgement on the underpayment of dues on account of licence fees and spectrum charges by telecom companies. Since they would have to pay up soon, the government expects a windfall in the coming financial year. However, that benefit has already been eroded.

In September 2019, in the name of stimulating the economy and accelerating high growth, the government cut the corporate tax rate sharply, handing over a bonanza to the corporate sector amounting to close to Rs. 1.5 lakh crore. It is clear now, that while that measure may have boosted the profits of big business, it did little to push up growth. On the other hand, the concession had resulted in a loss of revenues larger than what the telecom windfall offered.

Disinvestment and privatisation

The second significant number in the Budget is the projection that the government’s receipts from disinvestment of public sector equity in 2021 will amount to a staggering Rs 2,10,000 crore. This would consist of receipts from the privatisation of non-financial sector public enterprises to the tune of Rs 1,20,000 crore and another Rs 90,000 crore from sale of equity in public sector banks and financial institutions like the Life Insurance Corporation. This rush to privatise is to begin even earlier, as the government seeks to get more from sale of assets this year as well. In the budget for 2019-20, the government had provided for receipts from privatisation of Rs 1,05,000 crore. As of the end of January 2020, it had managed to mobilise only around Rs 18,000 crore. Yet, the revised estimates for this fiscal year (2019-20) provided in the Budget papers say that receipts from disinvestment would amount to Rs 65,000 crore. If such large sums are to be mobilised in the next two months and in the coming year, some of the best assets in the public sector have to be put on sale.

What does the government expect to achieve by selling its best assets? It clearly is not going to increase its expenditure levels, despite such receipts and the windfall gain from telecommunications. According to the budget papers, Central government expenditure in 2019-20 would amount to 13.6% of GDP. The figure for 2019-20 is projected at a marginally lower 13.5% in 2020-21. That amount to an effective standstill on the spending front. Nor is the government planning to spend money on projects and programmes that will help the poor already badly hit by demonetisation and the growth slowdown.

An exterior view of Life Insurance Corporation of India’s (LIC) headquarters is seen in Mumbai September 18, 2014. Photo: Reuters/Danish Siddiqui

The MGNREGA, on which Rs 61,815 crore were spent in 20018-19 and Rs 71,002 crore in 2019-20 (RE), is allocated only Rs 61,500 crore in 2020-21. The Scheme for the Development of Scheduled Castes on which spending fell from Rs 7,574 crore in 2018-19 to Rs 5,568 crore in 2019-20, is allocated Rs 6,242 crore in 2020-21. Such reductions are true in many other areas as well.

Does nothing for growth or welfare

In sum, this budget does nothing for either growth or welfare. It perhaps does not intend to. The government has possibly given up on being the locomotive that can pull the economy out of its descent into recession. Given the numbers, it is clear that in the short run the only way out was to borrow substantially more and spend in order to raise demand for the private sector and spur investment and growth. But the finance minister seemed comfortable declaring that the fiscal deficits in 2019-20 and 2020-21 would deviate from the targets of 3.3% and 3% of GDP respectively only marginally to touch 3.8% and 3.5%. Although these numbers are suspect and the deficit is likely to be much higher, the obsession with deficit control has implied that this budget does little to address the recession.

It is perhaps the realisation that it does not and that the government had gone too far in paying off the corporate sector with a tax concession identified as a stimulus measure that the Finance Minister decided to provide some support to middle income earners in the Rs 5-15 lakh annual income range. That meant additional revenues forgone to the tune of Rs 40,000 crore. She has also given the corporate sector an additional concession by abolishing the dividend distribution tax levied on corporates. That results in a further revenue loss of Rs 25,000 crore. This too suggests that looking for resources to finance a stimulus was not a priority.

The question remains as to what the economic vision of the government is. The recent focus on incentivising wealth creation, reiterated in the Economic Survey and the Budget, and the repeated references to the provision of “viability gap funding” in a host of areas stretching from health to tourism, seems to suggest that the government is looking to the private sector. Unfortunately, while happy with the concessions that flow from that perspective, India’s private sector waits expectantly for the government to take the lead.

C.P. Chandrasekhar is a former professor of economics at Jawaharlal Nehru University, New Delhi.