A disappointing Budget

If you were waiting to see if the Union Budget would help revive economic growth, then your wait is over. And the answer is, it won’t. At least not in 2020-21. For while measures may have been put in place for long-term ease of doing business and ease of paying, and litigating on, taxes, the Budget fails to address the issues of here and now. Absent is any effort to stimulate rural consumption by way of immediately putting more money into the hands of the rural population. The government had the ready instruments of MGNREGA and PM-Kisan to do so, but it has chosen not to, despite even Indian industry telling the government that that is the only way to revive consumption, and thus investment. The one big highlight of the Budget — changes in personal income tax — has only managed to cause confusion over whether one would be better off under the old regime with exemptions or the new regime minus the exemptions. As it turns out, the new Income Tax regime may benefit only those in the lower tax brackets, not those in the Rs 15 lakh and above income levels. And that, only in case those at income levels below Rs 15 lakh are not currently paying house rent, school fees and insurance premiums for which they claim exemptions. How realistic is that?

There’s nothing in the Budget to spur job creation, especially for the educated unemployed, which should have been the government’s top concern. The government also seems to have decided that it could do no more for domestic investors to encourage them to invest. Instead, the Budget has incentives only for foreign investors and sovereign wealth funds. The question the Narendra Modi government must ask itself is, will foreign investors pour money into India if it continues to ratchet up social and political tensions in the country with its political agenda?

Perhaps the government has decided to run the economic revival race on one leg – public investment – while being tied to the fiscal constraint, albeit a loosened one with a 3.5% fiscal deficit target in FY21. The government’s finances and infrastructure spend plan will depend heavily on what it achieves by way of disinvestment. The target is Rs 2.1 lakh crore in proceedings, and to achieve at least half of that ‘stretch goal’, it is banking on the Life Insurance Corporation (LIC) public offering that it has announced. Thus LIC, long used by governments to save companies in trouble, is now insurance for the government itself. It may be a good thing, of course, that LIC becomes a listed company. It may be saved that way. The saving grace is that there may be nothing in this Budget that is damaging that would raise calls for a roll back. That is an improvement over the one presented last July, and perhaps sign of a growing realism.