The budget as an exercise in smoke and mirrors
Source: By Rajrishi Singhal: Mint
The more they battle and claw, the more they resemble each other. Over the years, electoral politics has forced Bharatiya Janata Party (BJP) to start looking a bit like the Congress, the main opposition party. Born promising to be a party with a difference, especially by throwing in a temple and hardline majoritarian politics into the mix for good effect, the BJP is now suddenly borrowing from the Congress playbook to protect its vote share. Call it desperation or pragmatism, but finance Minister Piyush Goyal’s smoke-and-mirror interim budget echoes his predecessors’ wizardry in large parts. And yet, there were some major embellishments which have become this government’s hallmark. It is important to remember these differences in the midst of the similarities.
The first is the downgrading of autonomous institutions. The unseemly incident of the government delaying the release of unemployment data—which revealed that joblessness had reached a 45-year high—and the resignation of two professional statisticians focused attention on the BJP-led government’s penchant for controlling independent institutions as well as contaminating data hygiene to align it with a broader political narrative. A hurried press conference, convened by Niti Aayog vice-chairman Rajiv Kumar and CEO Amitabh Kant, to defend the delay and to refute the data didn’t help matters. This disregard for India’s institutional framework was further underlined with the release of revised data for gross domestic product (GDP) a day before the budget presentation—GDP data for 2016-17, the year of demonetization, was revised upwards to 8.2%.
Every government massages data but it’s usually kept within limits and without kicking up a dust-storm. For example, the upward revision in 2017-18 GDP growth data (from 6.7% to 7.2%) can perhaps be attributed to a desire to improve that year’s fiscal deficit (from 3.5% to 3.4% of GDP). But, more importantly, the attempt to burnish the 2016-17 GDP growth rate is a belated attempt to not only shift the narrative but to also acknowledge, in a backhanded way, that demonetization is a potential electoral millstone and needs a credible sheen.
Goyal’s deviation from the mean continues even with regard to the universal political impulse to over-promise and under-deliver. Every political party, while announcing the vote-on-account budget, uses the opportunity to grandstand, launch a mini-manifesto and deliver a political scorecard that is economical with the truth, the extent and degree varying with the leadership. Goyal not only ignored the elephant in the room—the unemployment crisis—but also failed to outline his government’s plans for creating future employment opportunities.
The budget has outsourced its capital expenditure responsibility, expected to drive future employment, to public sector units (PSUs) that will have to depend on external capital sources; this will undoubtedly increase their vulnerability to debt. Curiously, on the other hand, the government has made no provision for recapitalization of public sector banks: against ₹1.06 trillion in the current fiscal and ₹90,000 crore in 2017-18, nothing has been provided for 2019-20. An argument can perhaps be made about adding a sunset clause to unending government support for commercial banks, given moral hazard issues. The question is about the timing, especially given the continuing overhang of non-performing assets in the banking sector.
Goyal, like his worthy forerunners, has instead focused on doling out handouts, however meagre they may be. On election eve, he announced an ill-conceived income support scheme for landowning farmers. The plan smacks of competitive populism, betraying signs of being hastily put together to vie politically with an equally impractical Congress idea for a universal basic income. Goyal has budgeted for a 115% increase in outlay for centrally sponsored schemes operated by the department of agriculture, cooperation and farmers’ welfare in the agriculture ministry, with two-thirds of the allocation earmarked for the income support scheme.
The giveaways are backed by questionable estimates of additional revenue generation. In fact, with the goods and services tax (GST) collection falling short by ₹1 trillion in the current year, there is an overall ₹23,000-crore shortfall in gross tax revenue during the current year. Undeterred, the interim budget estimates a 13.5% growth in gross tax revenues against 10.97% nominal GDP growth during 2019-20. But, optimistically, the GST collection is now estimated to grow 18.2% over the current year’s accruals.
A strain of incredulity undergirds the interim budget. Here is an example: the receipts budget shows the government achieving its disinvestment target of ₹80,000 crore, though there is no accompanying explanation how this has been accomplished. Everybody knows that markets went numb after August 2018, jeopardizing the government’s disinvestment plans. The alternative route has been to force PSUs to either cough up large dividends or to coerce them to launch share buybacks: Indian Oil Corporation Ltd, Oil and Natural Gas Corp. Ltd, NHPC Ltd and Coal India Ltd are among some of the PSUs which have either launched or will be initiating a buyback programme.
As interim budgets get progressively political, it may be interesting to map their impact on election results. For example, it might be instructive to see whether this belated recognition of farm distress does translate into votes.
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