All eyes were on Finance Minister Nirmala Sitharaman as she was expected to wave a magic wand and take away all the troubles plaguing the Indian economy. But that was not to be. India has been in the grip of a slowdown and though the government has taken numerous steps outside the budget exercise to boost specific sectors and also kick-start demand, the economy has continued to chug along in the slow lane. The GDP growth came in at a six-year low of 4.5% in the September quarter.
The Reserve Bank of India has already done the heavy lifting by cutting lending rates successively for five times, and the onus was naturally on the government to take on some burden. There were widespread expectations of a fiscal stimulus from the finance minister when she rose to speak this morning.
Was she able to provide this stimulus?
DK Srivastava, Chief Policy Advisor, EY India did not think so. He said the extent of the stimulus provided remained marginal since the proposed increase in capital expenditure was marginal. This, despite the FM announcing a major (though expected) slippage in India’s fiscal deficit target by five percentage points to 3.8% for 2019-20.
She has again targeted the fiscal deficit at five percentage points higher than the earlier target for 2020-21 at 3.5%.
Srivastava said, “In spite of slippage in the fiscal deficit for FY20 and FY21 by margins of 0.5% points each from their respective targets at 3.3% and 3% of GDP, the extent of stimulus provided by Union Budget FY21 has remained marginal. There are small increases in capital expenditure as percentage of GDP amounting to 0.1% point of GDP both in FY20 and FY21 as compared to the preceding years… Moreover, the quality of fiscal deficit is projected to deteriorate in FY21 as compared to FY20. The share of revenue deficit in fiscal deficit is expected to increase to 77% in FY21 (BE) as compared to 63% in FY20 (RE).”
Shanti Ekambaram, president of Consumer Banking, Kotak Mahindra Bank said the budget has tried to address several themes but lacks any “big bang” announcement. “A lot was expected on the big boost to infrastructure, but perhaps the devil is in the details.”
Now let us look at whether the much-publicised income tax sops should cheer the salaried middle class. Sitharaman has been asserting that her income tax proposals would put more money in the hands of the aam aadmi, thereby boosting consumption and helping the economy.
She said during her speech this morning “people of India have unequivocally given their jan-aadesh for not just political stability and also reposed faith in our economic policies. This is the budget to boost their incomes and enhance their purchasing power. Only through higher growth can we achieve that and have our youth gainfully and meaningfully employed.”
But Girish Vanvari, founder of Transaction Square, said the impact of the income tax tweaks will vary from person to person. “If someone is claiming deductions like HRA, standard deduction, housing deduction etc, then the benefit may not be significant”.
He calculated total tax outgo on an income of Rs 15 lakh per annum under the new regime (with no exemptions and lower tax rates) versus the old regime (with exemptions) to show that the outgo would be higher under the new regime. So does this mean that the FM’s claim of putting more money in the hands of the aam aadmi is hollow?
According to the budget numbers, nearly 17% of the government’s income comes from personal income tax. Only about 4% Indians pay any tax on income and the expectation for relief was thus high among the salaried middle class. The proposed relaxation in income tax slabs would translate to Rs 40,000 crore revenue foregone for the government.
Senior Congress leader and former finance minister P Chidambaram said the General Budget is a “laundry list of old programmes”, adding that the government is in complete denial on the current state of the economy.
“I am at a loss to understand what was the message intended to be conveyed by Budget 2020-21. I am also not able to recall any memorable idea or statement in the speech. The government has given up on reviving the economy or promoting private investment or increasing efficiency or creating jobs or winning a greater share of world trade,” Chidambaram told reporters.
The Indian economy is demand-constrained and investment-starved. Finance minister Nirmala Sitharaman, who presented the Budget on Saturday, did not consider these two challenges, and that is a pity, he said.
“Consequently, she proposed no measures or solutions to those two challenges. If the twin challenges remain, the economy will not turn around and there will be no relief to the millions of poor and the middle class,” Chidambaram said, adding that the government has rejected every reform idea, which was a part of the Economic Survey 2020.
Earlier today, former Congress president Rahul Gandhi too criticised the government, saying it did not address the two key issues of economic growth and unemployment in the Budget.
“The main issues in this country today are unemployment and the economic situation. I didn’t see any concrete idea, any strategic idea that could help our youngsters to get jobs. I saw a lot of tactical stuff, you know, redundant things. I didn’t see any central idea,” Gandhi, also a Lok Sabha member, told reporters.
Opposition parties including Congress, Trinamool Congress, Left parties and Aam Aadmi Party have criticised the Budget for being lacklustre and inadequate to address the more pressing problems of the economy.
“Just platitudes & slogans. Nothing substantial to alleviate peoples’ misery, the growing unemployment, rural wage crash, farmers’ distress suicides and galloping prices. #BudgetSpeech,” Sitaram Yechury, general secretary of Communist Party of India (Marxist) or CPM, said on the micro-blogging and social networking website Twitter.
“I am shocked & appalled to see how the central government plans to ambush the heritage & legacy of public institutions. It’s the end of a sense of security. Is it also the end of an era? #LIC #IndianRailways #AirIndia #BSNL,” West Bengal chief minister Mamata Banerjee tweeted.
Banerjee’s tweet was in reference to Sitharaman announcing that the government plans to sell a partial stake in Life Insurance Corporation of India (LIC) through an initial public offering (IPO).
Dismissing the Union Budget as “anti-people”, with there being nothing for those at the bottom of the pyramid, West Bengal Finance Minister Amit Mitra said the nation’s economy was now “on a ventilator” after being in the Intensive Care Unit.
“This budget is anti-people. It doesn’t have anything for the people at the bottom of the pyramid,” Mitra, also a noted economist, told media persons here.
Mitra pointed out that funds meant for schemes for agriculture, health, education, Scheduled Caste and Scheduled Tribe people have seen an overall cut of 8.9 per cent.
“This shows the government has no vision about the social infrastructure,” he said, referring also to cuts in the fund allocations for MGNREGA and National Health Mission.
He called the Income Tax reduction proposed in the Budget a “bluff”, saying the Finance Minister has “given from one hand and taken more from the other” — a reference to the removal of all tax exemption avenues for those availing of the new Income Tax rates.
“Economy was in ICU (Intensive care unit) and now it is on a ventilator”, he added.