Budget 2020

Budget relies on a weak database

New Delhi: CPI(M) leader Sitaram Yechury at Parliament House in New Delhi on Tuesday. PTI Photo by Manvender Vashist (PTI12_6_2016_000180B)  

At the outset, this year’s budgetary exercise suffers from a major drawback. Normally, the Budget relies on the database of the Indian economy which comes in after the third quarter statistics are tabulated. This usually comes in by the beginning of February for the October-December quarter. This is an important quarter under normal circumstances as it reflects the impact of the monsoons and the output of the agricultural sector, the economic backbone for the vast majority of our people.

This year, this quarter is of additional importance for the effect of demonetisation. International agencies and our own economic survey are projecting a significant fall in our growth rate. By advancing the Budget to February 1, the database is essentially confined to the first two quarters of the fiscal year. And, hence, both the calculations and the projections can be seriously flawed.

Take, for instance, the assumption made in this Budget of an increase in direct tax collection by ₹1.3 lakh crore. By now it is common knowledge that the advance tax to be paid by December 15 was widely used as the conduit for converting black money into white following demonetisation. Once this fiscal year’s tax liability is completed through the filing of returns, much of this advance tax may be returned. Hence, any calculation based on such dubious statistics will be rendered useless.

This apart, the Economic Survey itself suggests that to overcome the impact of demonetisation, the need is to massively expand domestic demand which can put the economy on a trajectory of high growth.

Expansion of domestic demand would require greater governmental investments and expenditures that can generate new employment. The Budget, however, squeezes such expenditures, with its size coming down from 13.4% of the GDP last year to 12.7%. Despite all talk of infrastructural growth, the capital expenditure in the Budget has fallen from 1.86% of the GDP to 1.84% in this Budget. Likewise, last year, ₹47,400 thousand crore was spent through the MGNREGA. This year, ₹48,000 crore have been allocated.

The informal sector of our economy contributes nearly half of our GDP and employs nearly three-fourths of our working people. This sector was worst hit by demonetisation and continues to remain crippled. The suggested reduction of income tax for MSMEs with an annual turnover of ₹50 crore does not provide the much-needed relief to this sector.

As for the social sector expenditures, the small increase proposed would barely meet the increased salary expenditures due to the Seventh Pay Commission.

For the deprived sections of our people, the allocations have been a measly 1.48% of the total budgetary outlay for the Scheduled Tribes, 2.44% for the Scheduled Castes and 5.3% under the gender Budget, much lower than their population share.

Notwithstanding the rhetoric of doubling farmer’s income, the allocation for Agriculture, Cooperation and Farmer’s welfare has declined from 1.98% of total expenditure last year to 1.95% allocated this year. The mere announcement of availability of funds for farmer’s credit of ₹1 lakh crores is of no significance since farmer’s distress suicides are mainly due to the fact that they are unable to repay the loans they have taken. What was required was a loan waiver for the farmers. Instead, earlier this year, the government announced in Parliament that it had written off ₹1.12 lakh crores of loans (NPAs) to the corporates!

Additionally, the direct tax concessions, have resulted in a loss of ₹ 20,000 crores of revenue while indirect taxes are estimated to rise by nearly ₹75,000 crores, further burdening and squeezing people’s purchasing power, further contracting domestic demand.

The government has, thus, achieved `fiscal stability’ through expenditure contraction and not through revenue augmentation. This is the opposite of the Economic Survey prescriptions. Thus, the coming year will most likely see substantial supplementary budgets being brought in the Parliament as the complete 2016-17 fiscal year data is available.

Finally, the announcements regarding political funding and electoral expenditures of political parties is a classic exercise of playing to the gallery. Any serious effort at curbing the unhealthy influence of money power distorting the democratic processes must begin by a legal ceiling on election expenditures of political parties in addition to the existing ceiling on candidates and a complete ban on corporate funding. Corporates must fund to strengthen our democratic processes. But this fund must be supervised by the Election Commission to put in place a system of State funding of elections.

This article is closed for comments.
Please Email the Editor

Printable version | Nov 30, 2020 5:33:11 PM | https://www.thehindu.com/business/budget/Budget-relies-on-a-weak-database/article17129785.ece

Next Story