An exercise in contraction

The Finance Minister presented the first full budget of the Modi government with an air of “illusions of grandeur”. Preparing for the celebrations of the 75th anniversary of our independence in 2022, he listed “targets” that will be achieved by then. This list is a mere reiteration of what is contained in our Constitution’s Directive Principles of State Policy that should have been attained by 1960! Clearly, he has presumed the Modi government’s return in the 2019 general election. The Modi anti-incumbency wave in Delhi election has, thus, become a victim of the BJP’s “selective amnesia”.

Shorn of all its rhetoric, what does the budget mean for the people? Instead of expanding public expenditures to stimulate growth, employment and people’s livelihood, the budget sees a contraction. In 2014-15, total government expenditure will be 7 per cent lower than the last budgeted figure, i.e., Rs.1.14 crore less. For 2015-16, the estimated gross tax revenue stands at 10.3 per cent of GDP which is less than last year’s budget figure of 10.8 per cent.

Social sector spending

Instead of stimulating domestic demand by targeting larger expenditures in social sectors, the budget proposals do the opposite to contain the fiscal deficit at 3.9 per cent. The allocations for MGNREGA and food subsidy have almost stagnated, in real terms, showing scant concern for food security, generating employment and improving people’s livelihood. Total subsidy as percentage of GDP has come down from 2.1 per cent to 1.7 per cent (Rs.2.60 lakh crore to Rs.2.44 lakh crore). The allocation for health and family welfare has come down from Rs.35,163 crore last year to Rs.29,653 crore. The total budgeted figure for housing and urban poverty alleviation has come down from Rs.6,008 crore to Rs. 5,634 crore. Similarly, there is a huge shortfall in allocations for the Tribal Sub-Plan (less by Rs.5,000 crore compared to last year), for the SC Sub-Plan (less by Rs.12,000 crore). The Gender Budget cut by 20 per cent (less by Rs.20,000 crore). The ICDS programme has been halved, from over Rs.16,000 crore to Rs.8,000 crore.

Instead, India’s rich and both foreign and domestic corporates have hugely benefited. The budget proposals will reduce direct taxes by Rs.8,315 crore benefiting the rich and increase the burden on people through indirect tax hikes of Rs.23,383 crore. In addition to direct tax benefit, for India’s rich, wealth tax has been abolished, corporate tax planned to reduce from 30 to 25 per cent, greater concessions and access to FDI, and FIIs absolved of capital gains tax and minimum alternate tax (MAT).

Further, the reduction in the tax concessions given by the Central government to the rich (subsidies to the rich called “tax incentives”) results in a revenue loss which is more than the actual fiscal deficit (i.e., Rs.5,89,285.2 crore for 2014-15 as against the budget estimate of fiscal deficit of Rs.5,55,649 crore). Hence, our economy is suffering from a deficit burden primarily due to such subsidies to the rich, not due to subsidies for the poor. Under these circumstances, to bolster governmental revenues, the budget has announced an aggressive disinvestment of the public sector to the tune of Rs.70,000 crore, i.e., selling “family silver” to meet current expenditure.

Mirrors UPA reforms

The Modi government’s budget this time is, thus, a more aggressive variant of Dr. Manmohan Singh’s reforms. They follow the same logic that our economic development is only possible by attracting larger quantum of investments through big concessions to foreign and domestic Capital. However, this alone cannot automatically lead to higher employment and growth. This can only happen if the purchasing power of our people grows to be able to purchase any increased production. With global commerce shrinking due to continued economic slowdown, our exports will remain low. People’s purchasing power will now further contract this budget.

Instead of expanding concessions amounting to lakhs of crores of rupees for attracting investments, which, in any case, cannot result in growth and improve people’s welfare, if these amounts were utilised for substantially increasing public investment to build our much needed economic and social infrastructure, both greater growth and equity could have been achieved.

However, by doing this, the Modi government could not have redeemed its “payback time” promises to those who heavily financed its election campaign. The Finance Minister was confident that the time has come for India to fly. With this budget, the rich may soar but the poor will have to prepare themselves for a disastrous crash landing.

(Sitaram Yechury is Polit Bureau member CPI(M) and Member, Rajya Sabha.)

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Printable version | Feb 22, 2020 10:17:01 AM |

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