The 2019-2020 Indian national budget stands out for three reasons: It is the first budget to be presented by a full-time woman Finance Minister, Nirmala Sitharaman. It is the first budget not to mention allocations for Defense. Lastly, and most importantly, it is a budget aimed at winning the coming State Assembly elections in Maharashtra, Haryana and Jharkhand.
Maharashtra is to go to the polls in September-October 2019, Haryana in November 2019, and Jharkhand in January 2020.
The 2019-20 budget had to be populist because Prime Minister Narendra Modi and his Bharatiya Janata Party (BJP) know, in their heart of hearts, that they won the just concluded parliamentary election largely due to the Pakistan-inspired terrorist act in Pulwama.
The killing of 44 Indian servicemen by a suicide bomber gave Modi a chance to conduct a daring air raid into Pakistan and “kill” 300 terrorists, and portray himself as a “strongman” who would take on any aggressor in a no-holds-barred way.
No one in the opposition, including Rahul Gandhi, could make a similar claim in an atmosphere surcharged with nationalism bordering on jingoism. No wonder, Modi won the elections decisively.
But Modi knew that he had not delivered on the tall economic promises he had made when he came to power in 2014. The “Achche Din” or the “Good Days” he promised remained a chimera.
The unemployment rate at 6.1% had reached a 45-year high. Debt-ridden farmers were committing suicide in droves. His grandiose “Make in India” plan turned out to be a hoax with little or no foreign investment coming in.
Fortune may not favor Modi in the polls in the months ahead, if he does not have a blueprint for economic development, foreign and domestic investment and job generation. It is this huge credibility gap that the 2019-20 budget was trying to fill.
Modi and Sitharaman took advantage of the fact that defense was covered in the Interim Budget presented in February 2019. Nothing much could be added to it given the financial constraints the government is facing in satisfying the increasing expectations of the people.
All that Sitharaman said about defense in her speech was: “Defense has an immediate requirement of modernization and upgradation (sic). This is a national priority. For this purpose, import of defense equipment that are not being manufactured in India are being exempted from the basic customs duty.”
In the Interim Union Budget 2019-20 presented in Parliament on February 1, prior to the parliamentary , US$ 42.7 billion was earmarked for Defense, an 8% increase over the previous year.
This hike would not, however, satisfy the Ministry of Defense, which is already grappling with a huge shortage of resources to meet its expenses. In 2018-19, the shortage of funds for the three services amounted to 30% or Rs. 1,12,137 crore against a projected requirement of Rs. 3,71,023 crore.
Sitharaman’s budget promises that every household will have electricity connection by 2022 and that there will be no open defecation anywhere after October 2, 2019.
To improve rural connectivity, which is very poor in most parts of India, the budget has made provision for improvement of 125,000 km of roads within the next five years. As decent housing is an issue in both the urban and rural areas, provision has been made to build 1.95 crore houses. To enable people to take loans to build houses, interest deduction has been given up to Rs.3.5 lakh.
While the rich companies will be taxed heavily, startups will not need to go through income tax department scrutiny of the funds they raise for their enterprise. There will be a pension scheme for shop keepers and small businessmen with an annual turnover of Rs.1.5 crore.
To help the farmer produce more and safeguard his interest through cooperation, 10,000 new Farmer Producers Organizations will be set up. Sitharaman also said that there will be “zero budget farming” with “zero dependence on debt” coupled with “low production costs”. This, she said, is doable because some States have done it. The private corporate sector will be encourage investments in agriculture.
Since the railways play a critical role in the economy, Rs.50 lakh crore has been set apart for this sector for the period 2018-2030. And perhaps for the first time, river transport, long neglected, will be encouraged with schemes.
To make up for the shortage of funds for investment, there will be more borrowing from the international market. This is enabled by the fact that India’s sovereign external debt is only 5% of the GDP which is the lowest in the world.
India will take steps to provide good conditions for foreign investment. Sitharaman indicated that labor laws will be streamlined. Insurance intermediaries, media and aviation will be thrown open to foreign investment. Foreign students will be encouraged to study in India and contribute to its coffers.
Since India has taken rapid strides space technology, its commercial applications would be used to earn money. A company called New Space India Ltd.,will be formed to make this a reality.
Modi’s plan is to make India a US$ 5 trillion economy by 2024-25. It will be a US$ 3 trillion economy by the end 2019, Sitharaman said. She claimed that it took 55 years to reach the US$ 1 trillion level, but the Modi regime raised it by US$ 1 trillion in just five years.
But she admitted that a lot remains to be done. “ We need to invest heavily in infrastructure, in the digital economy and job creation,” the Minister said.
Private Sector Plagued By Doubt
The private sector however is not so sanguine as the government. In a panel discuss on NDTV, private sector honchos made it a point to stress that the proof of the pudding is in the eating. Every government and every budget had promised the earth but delivered little, they pointed out.
“The real import of the pronouncements made in the budget is in the official circulars sent by the line ministries and departments. The devil is in the details and the fine print there,” one entrepreneur said.
All of them pleaded for a co-ordinated approach, a “cluster approach” as one of them put it, where development will take place in a holistic way with domestic public, private and foreign investment working in an area in a systematic way.
The honchos were disappointed that there was no mention of the reform of the judicial system which puts off investors both domestic and foreign. While tax collection has to be improved vastly, it cannot be substituted by “tax terrorism”, they said.
The system is so corrupt that the big tax evaders get off the hook while the small fry get caught, they said. A system that lacks credibility cannot attract foreign investors and render “Make in India” a reality and not a chimera.
There is no system to speed up the judicial process. The Vodafone dispute is still be resolved and this irks foreign investors, it was pointed out.
There is appreciation of the government’s declaration about encouraging private corporate investment in agriculture, but experience has been that such pronouncements have not found expression in actual practice. The reality is that the corporate sector is not welcome in agriculture.
While the Small and Medium Sector needs to be encouraged, it is not a significant job provider. The big job providers are the big companies and this is the experience of China. China has exploited this to the full, to lift millions out of abject poverty it is pointed out.