Not a full thali, only morsels for everyone

By the time Finance Minister Nirmala Sitharaman began to wind down her 162-minute Budget speech — the longest on the clock — on Saturday, she was overcome with exhaustion to the point where she was counselled to table the Budget papers without reading them in their entirety.

Her fatigue, however, was perhaps reflected in her audience — not just in Parliament, but in millions of homes and offices via television. Her address was laden with policy minutiae and philosophical and poetic diversions, but seemed to be lacking in a big idea that could address the challenges — of growth, investment, jobs, and consumption revival — and revive the animal spirits of an economy in the grip of a severe slowdown.

Crumbs aplenty

Not that the Budget was low on measures calculated to stoke positive sentiments: Sitharaman boldly announced a move to dilute the government’s stake in the Life Insurance Corporation of India (through an IPO); did away with the Dividend Distribution Tax in companies’ hands; announced 100 per cent tax exemption for sovereign wealth funds’ investments in the infrastructure sector; extended the insurance guarantee on bank deposits to ₹5 lakh (from ₹1 lakh) per depositor; and enhanced outlays for social welfare and distributive schemes, particularly those to which Prime Minister Narendra Modi is partial.

She even unveiled a tax-slashing ‘reform’ measure targeted at low- and middle-income earners on condition that they give up the exemptions they qualify for; but, again, the proposal is so mired in microdetails that it was not immediately clear if these taxpayers would gain anything at all from the measure. Or whether the projection of ₹40,000-crore ‘revenue forgone’ under this head would fuel a consumption-driven boost.

Additionally, the numbers underlying the Budget do not inspire faith in their fidelity or in their ability to kick-start the economy. For one thing, the Budget has projected a nominal growth rate (that is, including inflation) of 10 per cent for Financial Year 2020-21, which seems overly optimistic. And the projections for realisations from disinvestment — after carrying over from this year’s inability to meet the targets — seem somewhat distanced from reality.

No more ‘escape clauses’

Sitharaman invoked the ‘escape clause’ under the Financial Responsibility and Budget Management Act to give herself the elbow room to spend by relaxing the fiscal deficit target by half a percentage point, for this year and the next. Although she pledged to ensure that private investments would not be crowded out by government borrowings, the mathematics behind the Budget rest on too many sanguine assumptions. If the economy does not revive as planned, or if disinvestment targets fall well short, she will have no room to negotiate next year.

Stocks plummet

No wonder, then, that the stock market took the Budget 2020 proposals badly: by day’s end, the bellwether Sensex was down nearly 1,000 points, or 2.4 per cent. Sitharaman saw it as an overreaction, and it may well have been, but the initial response has not exactly been propitious.

Other responses to the Budget flowed on partisan lines. Modi commended it, and claimed that it had “vision” and “action” and that the proposals would propel the economy. Former Finance Minister P Chidambaram said the proposals suggested that the Modi government had “given up on reviving the economy”. Asked what rating he would give the Budget (on a scale of 10), he responded trenchantly: “The number 10 has two digits: one and zero; you could pick either of those.”

Partisan politicking aside, the overwhelming feeling arising from Budget 2020 is that it lacks the sense of urgency demanded of an economy facing a severe slowdown. The Budget has many moving parts, but they seem not to add up to a cohesive whole. In focussing excessively on the minutiae, it has missed the woods for the trees.

COMMENT NOW