JOIN USFinance Minister Nirmala Sitharaman said her budget “is setting a vision, target, laying out plans to achieve the target…” Yet, one finds it difficult to clearly see a vision and plans, although the target — a $5 trillion GDP economy in five years — has been fixed. Rather, there are signals that point toward particular long-term goals. One discernible goal is that of shifting the nation to electric mobility. The budget provides a tax break on interest paid on loans to buy an electric vehicle (EV); the GST rate on EVs has been brought down to 5%. Together with the move to raise cess on petrol and diesel by Re 1 per litre, these measures form a cohesive vision and policy to achieve the goal. That same cohesion and policy framework is not visible on the overall economic vision. That is, however, not to say that there is nothing worth noting in the budget. Taxing the super-rich a bit more is a good signal of ‘progressive’ taxation, especially when read together with the additional, but temporary, Rs 1.5 lakh tax concession on interest on housing loans for the middle class. The worry, however, is that the additional revenues being mopped up are in the form of surcharges and cesses, which cuts out the states from their share of revenues. That’s not good for federalism.
The budget allocations for the various social sectors and schemes are the same as that made in the interim budget in February. This has introduced anomalies as new estimates have become available since but have not been taken account of. For instance, the expanded PM-Kisan scheme costs Rs 87,000 crore, but the outlay in Sitharaman’s budget remains Rs 75,000 crore as in February, contributing to what looks like a firmed up fiscal deficit target. Indeed, the lower fiscal deficit number is also based not on buoyant personal income tax and GST revenues, which are falling, but on the assumption of higher non-tax collections from disinvestment, asset monetisation and 5G spectrum auction later this year, even as telecom companies are in no shape to pay for it. The question is, does the economy need fiscal tightening at a time its heartbeat is ebbing? If it is not needed, we are heading in the wrong economic direction. If it is necessary, then the projected tightening is based on assumptions that may not hold.
There is much tinkering with institutions and financial instruments, and it remains to be seen how well these fit into the larger scheme of things. Bringing housing finance corporations (HFC) under the regulatory gaze of the RBI is a good move; the one-time partial guarantee to public sector banks on NBFC borrowings a necessary evil. That the government is desperate for capital and investments from any source is clear from the proposed overseas bonds in foreign currencies as well as the foreign direct and portfolio investment (FDI and FPI) taps being sought to be opened full force. While easing local sourcing norms for single brand retail to attract FDI is a positive, FPI is being sought into companies and financial instruments in risky gambits. The budget also proposes to use the government’s land parcels for public infrastructure and affordable housing. That’s good, but is it a signal that the government intends to go slow on land acquisition reforms? Lastly, for a government that came to power shouting and screaming about national security, the flat defence allocation is a serious letdown and will harm military modernisation. Or, is it a tactic to force the Armed Forces to accept large-scale manpower cuts before giving them money for modernisation?