Long on Talk, Short on Ideas

Nirmala Sitharaman’s second Budget speech was written to be all of 18,971 words long. Of course, she did not read out all of it, but it still took her close to 165 minutes to deliver the portion that she did.

In the old Indian examination style, Nirmala Sitharaman was filling up space despite not knowing the answers to turn the Indian economy around, quoting everyone from Kalidasa to Aauvaiyar to Prime Minister Narendra Modi, along the way. Now only if good quotes could turn around the economy!

For starters, the allocation to Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) was slashed from Rs 71,002 crore in 2019-20 to Rs 61,500 crore for 2020-21.

On the flip side, dud public sector enterprises like BSNL and MTNL will get equity investments of more than Rs 20,000 crore in 2020-21, to keep them going.

In an economic scenario where the nominal economic growth (not adjusted for inflation) is at a 17-year low, it would have been a good idea to try and stimulate some economic activity through MGNREGS for the poorest of the poor.

The salaried income tax-paying middle class thought it had got lower income tax rates, only to realise that the new income tax system with lower tax rates does not allow for any exemptions and deductions. So, if you are the kind who makes investments under Section 80C or has an HRA component in your salary to pay rent, or are paying off your home loan, you are probably better off on the old system. The choice is yours. Of course, the government wants you to do all the math to choose between the old and the new.

The rich were expecting the long-term capital gains on the sale of shares to go. That did not happen, and the Bombay Stock Exchange expressed its disappointment by going south. Sensex fell by 988 points or 2.4% to 39,754 points.

Nirmala told the nation that the government has plans to develop five new smart cities, without revealing the status of all the smart cities that were supposed to be developed earlier.

The disinvestment target for 2020-21 has been set at an optimistic Rs 2,10,000 crore. Some detail on how the government plans to earn such a huge amount would have been helpful. During the first nine months of 2019-20 (April-December 2019), the government has earned Rs 18,100 crore through disinvestment against the planned Rs 1,05,000 crore.

Nirmala also talked about a new National Logistics Policy which will create a single-window e-logistics market. The trouble as Vijay Kelkar and Ajay Shah write in In Service of the Republic is: “We do not make the Gestapo nicer by setting up a pleasant front desk.” Without deeper reform, it is difficult to build a single-window system which overcomes a maze of restrictions. There was no talk about that.

Over and above this, the government’s expectations of a good dividend from the Reserve Bank of India (RBI) continue. In 2019-20, the dividend earned through the RBI, public sector banks and financial institutions, stood at Rs 1,51,637 crore. Given that the public sector banks are barely making any money, a bulk of this has come from the RBI.

In 2020-21, the dividend expectations are Rs 89,649 crore. Again, a bulk of this is likely to come from the RBI. This is a bad habit that the government seems to be developing, to say the least.

To conclude, this budget, like many previous budgets, was high on talk and low on reforms that the country badly needs to get economic growth going again and save its demographic dividend.

(The writer is an economist and the author of the Easy Money trilogy.)