Sleight of hand

The striking aspect of the NDA government’s last full Budget is a lack of clarity on policy measures and the absence of commitment of resources to back them up.

A homeless woman at a bus stop in New Delhi. The Budget allocation for Pradhan Mantri Awas Yojana, the government's flagship housing scheme, has been increased by just 3 per cent.

Billed as the last full Budget of the second National Democratic Alliance (NDA) government, Budget 2018 was not expected to surprise. The leadership of the government might be pleased with having played, in nearly four years of its tenure, with programmes varying from “Make in India” to Swachh Bharat Abhiyan, experimented with demonetisation, and launched the Goods and Services Tax (GST) regime. But while none of these immediately benefited the “common man”, some of them like demonetisation actually hit the vulnerable, and GST disrupted production and damaged the operations of micro, small and medium enterprises (MSMEs). There was also evidence that agriculture had been neglected and allowed to languish over the last four years, which led to farmers’ agitations. Moreover, the feeling on the ground was that the real economy was not doing well, notwithstanding gross domestic product (GDP) projections and the pre-Budget, speculation-driven boom in the stock market.

Given the circumstances in which it was unveiled, it was obvious that the primary thrust of the Budget would be corrective action that offered some succour to the large mass of the deprived in India, with some focus on the agricultural sector and small industry. In advancing this agenda, Finance Minister Arun Jaitley had to go beyond the belief that had served the NDA in the early phases of its tenure—that propaganda combined with the oratory of a couple of demagogues can replace real policy action when seeking popular support. But if he chose to adopt redistributive policies, he needed to make sure that he did not, in the process, lose the support of Indian big business, which financially and through the use of a corporate-controlled media contributed much to the NDA’s cultivated legitimacy.

That was a tough call, more so because the NDA and its leadership invested much to advance its claim of being the real carrier of the post-1991 neoliberal “reform” agenda. There were many indicators of that image that the government itself had sold those concerned: strict adherence to fiscal consolidation with ever-lower fiscal deficit targets; periodic big-ticket liberalisation on the trade, foreign investment and domestic liberalisation fronts; and large-scale disinvestment and privatisation, including a return to the mechanism of “strategic sales”, where management was handed over to the private investor even when less than 50 per cent of equity was bought from government. This self-cultivated image also had to be reinforced by the Budget.

Little on offer So the Finance Minister had his task cut out for him while presenting Budget 2018-19. He has clearly failed. As the veil that initially concealed the essential features of the Budget was lifted, every section that had ostensibly been favoured by the Budget realised that there was little on offer, and many who thought they had only been ignored realised that they had actually been hit. Combine that with the fact that the Budget does nothing to lift the prospects of those whose incomes have stagnated or been depressed, and it proves to be a damp squib.

It is clear that the Finance Minister has chosen to address pre-election imperatives with mere rhetoric and window dressing rather than actual measures backed with financing aimed at the neglected and marginalised sections of society. Put simply, this Budget does not put its money where its mouth is. As expected, the Budget made noises regarding special policies for the rural sector, small industry and the marginalised. But what is striking is the lack of clarity on the details of the policy measures announced and the absence of commitment of adequate budgetary resources to back them up.

The one pro-farmer measure that the Finance Minister celebrates is a much-belated plan to implement the M.S. Swaminathan Commission recommendation that the floor of the minimum support price (MSP) for crops be set at 1.5 times the cost. This has been done for rabi crops, said the Finance Minister, and will now be extended to kharif crops.

It took no time for sensible observers to ask: which cost? A2 as defined by the Commission for Agricultural Costs and Prices (CACP), which takes into account only paid out costs; or A2+FL, which adds on the imputed cost of family labour; or C2, which takes into account imputed rent and interest on owned land and capital?

If it is the first, then MSPs in the case of most crops already match that requirement and farmers find them inadequate. If he means the second, there are still some rabi crops that do not meet the norm. And if it is the third, the announced MSPs are nowhere near. If we presume that the government is sincere about moving to A2+FL or C2 as the basis for cost, then the resources do not seem to have been provided for it.

Increases in budgetary allocations for food subsidy, for example, are needed to clear the government’s past arrears due to Food Corporation of India. So, the government is expecting to continue with a situation where the coverage of procurement at MSPs is limited and its sincerity is obviously in question.

Absence of resources This absence of resources to back promises is visible elsewhere as well. Thus, although Part A of the Budget speech repeated the words rural, agriculture and farmer in an attempt to define its thrust, the allocation for the Department of Agriculture, Cooperation and Farmers’ Welfare has been increased by just 7 per cent in Budget 2018-19 as compared to the Revised Estimate for 2017-18.

This is a negligible increase in real terms. Rather than significantly increasing budgetary support for a sector in crisis, which forced some State governments to accede to demands for farm loan waivers, the Finance Minister has merely offered more debt to farmers. He has promised to increase the flow of institutional credit to agriculture from Rs.10 lakh crore to Rs.11 lakh crore. That is not government money but that of banks, which are also reeling under a crisis.

This absence of allocations to back claims of devoting additional resources to uplift the poor and the marginalised is visible in other areas too. The Finance Minister announced the launch of the “world’s largest government funded health care programme” through a flagship National Health Protection Scheme that would “cover over 10 crore poor and vulnerable families [approximately 50 crore beneficiaries] providing coverage up to Rs.5 lakh per family per year for secondary and tertiary care hospitalisation”.

Strangely, no clear estimate of the resources required is provided and not a single additional rupee has been set aside in the Budget for this purpose. Nor has any information been provided on whether discussions have been held with insurance companies that will implement the scheme and the premiums they would charge. And there is post-Budget talk of the contributions State governments would be called upon to make to finance the scheme, but they have not been consulted. Once all of that is done, the whole scheme may be quietly dropped for lack of resources. In any case, what India needs, according to experts, is universal health coverage backed with public provision. Failing that, administrative costs would be high, and much of the money would accrue to private sector insurance companies.

Similarly, the Budget speech talks of fulfilling the dreams of the poor to own houses. Yet, the nominal allocation for the Pradhan Mantri Awas Yojana has been increased by just 3 per cent. After much hesitation, the NDA was forced to accept that the Rural Employment Guarantee Scheme was a “flagship” programme it must take ownership of, but it is only mentioned in passing in the Budget speech, and allocations for the programme for 2018-19 have been kept at the same level of Rs.55,000 crore as provided for in the Budget for 2017-18. It is another matter that the full amount was not even spent in 2017-18, despite the overwhelming evidence that the demand for jobs in the scheme was large and wages were in arrears.

Overall, the fiscal stance of the Budget is conservative. The ratio of total Central expenditure to GDP, which fell from 14.2 per cent in 2012-13 to 12.9 per cent in 2016-17, is expected to rise to only 13.3 per cent in the coming financial year. Even that figure is unlikely to be realised given the consistent shortfalls in Revised Estimates in most Ministries over the years.

Measly concessions These, of course, are instances where allocations do not match promises. There are others where concessions are accompanied by measures that neutralise their effects. The additional Rs.40,000 standard deduction in lieu of transport and medical allowance deduction is a typical example.

Regarding medium and small-scale industries, the real issue of lack of demand and low or negative profitability is not the focus of the budgetary measures. Rather, the aim is to improve credit access and reduce taxation of profits. The Budget has allotted Rs.3,794 crore for credit support, capital and interest subsidy and support for innovations in the MSME sector. It has also extended the reduced rate of 25 per cent currently available for companies with a turnover of less than Rs.50 crore (in the 2015-16 financial year) and to companies reporting a turnover of up to Rs.250 crore in the 2016-17 financial year. This is expected to benefit the entire class of MSMEs, which account for almost 99 per cent of companies filing tax returns.

There is no allocation involved here, but the revenue forgone during the 2018-19 financial year is estimated to be Rs.7,000 crore. How far this measure would go to enhance post-tax profitability and steer output and job growth, given the market, is unclear. But that the government feels that there is a need to enhance demand for domestic firms comes through from the decision to offer some protection by hiking customs duties on 46 items.

What is surprising is that despite such measly concessions, restricted spending, optimistic revenue projections and an additional 1 per cent across-the-board cess, which need not be shared with the States, the government finds it difficult not to sway off what the Finance Minister describes as his fiscal consolidation “glide path”. The fiscal deficit for 2018-19 is placed at 3.3 per cent of GDP, rather than the original target of 3 per cent.

The reason comes through from an examination of the revised numbers for the 2017-18 financial year. For this year, the Finance Minister has not been able to achieve his irrational target of restricting the fiscal deficit to 3.2 per cent, with the deficit (optimistically) estimated at 3.5 per cent.

What is noteworthy is that even for 2018-19, the deficit overshoots the target set earlier despite the facts that (i) Finance Ministry mandarins have kept some big-ticket spending items (such as expenditure on the recapitalisation of banks) outside the Budget through a sleight of hand and (ii) the government arranged a transfer of Rs.36,915 crore from Oil and Natural Gas Corporation (ONGC) in return for a 51.1 per cent stake in Hindustan Petroleum Corporation Limited (HPCL) one day before the Budget. There is no clarity on how this would benefit ONGC, which would have to borrow money and deploy cash surpluses to finance the deal. But this helps take the estimated receipts from disinvestment in 2017-18 to Rs.1,00,000 crore as against the budgeted Rs.72,500 crore, helping reduce the deficit financed with borrowing.

GST shortfall Clearly, the shortfall in GST receipts, which had taken the fiscal deficit figure to 112 per cent of that budgeted by November 2017, played a role in upsetting the government’s fiscal consolidation agenda. What that shows is that neither is the GST delivering on its promises nor is the economy doing well from a revenue buoyancy point of view. This seems to have pushed the government into adopting what many may consider the one progressive action in the Budget—the restoration of a tax on capital gains made on investments of more than a year in stock markets.

The long-term capital gains tax that was abolished in 2003-04 has been reinstated at 10 per cent for gains exceeding Rs.1 lakh, and the short-term capital gains tax kept at 15 per cent. However, this, together with customs duty hikes and the fact that a large chunk of disinvestment receipts is not from sales to the private sector but obtained from crossholding investment by ONGC in HPCL, does dent the government’s well-cultivated “reformist” image. The Budget, the single most important propaganda pamphlet issued every year because of intense media attention, has failed to vindicate the Prime Minister’s claim that he is the most passionate “reformer” of all time.

The speculators in the stock market have taken note and reacted adversely to this move. The government’s image of being “reformist” has taken a hit among speculative foreign and domestic investors despite all the tiresome talk about India’s achievements with respect to “the ease of doing business” in the Finance Minister’s speech. Speculators need to be constantly fed with hope. But that is not possible when even money to bolster one’s image before multiple elections is not available, leaving the Finance Minister with only the option of engaging in big talk backed with little money. But that does not please those who have been the losers in the neoliberal game and need to be compensated. In any event, support for Budget 2018-19 is missing across the income and wealth spectrum.