Nothing is going well for the government. The farmers are angry, the protests have spread to other parts of the country, and the farmers of Punjab, Haryana and Uttar Pradesh are deeply hurt by what they believe to be the machinations of the central government and the BJP. China has dug its heels and has refused to vacate Indian territory that its troops have occupied. The Budget is being presented under extremely strained circumstances with lower revenues and higher demands. All but one ally have left the NDA; the crypto-allies (YSRCP, TRS, BJD, BSP) have distanced themselves on contentious issues; and the alienation between the Treasury Benches and the Opposition is complete.
The President’s Address did not contain any new or imaginative agenda. The speech revealed that the government was looking at the country’s future through the rear-view mirror. The next opportunity is the Budget for 2021-22.
Disaster to Catastrophe
I hope the Budget does not share the fate of the previous Budget (for 2020-21). That Budget began to unravel within weeks of its presentation. The Finance Minister herself unmade many of the announcements she had made. Even without the pandemic, the economy would have continued on the downward path that had begun in the first quarter of 2018-19 and continued for eight successive quarters ending March 31, 2020. The pandemic pushed the economy into an abyss: -23.9 per cent in the first quarter of 2020-21 and -7.5 per cent in the second quarter. Ms Sitharaman has the distinction of presiding over the first recession in forty years.
It is now acknowledged that the year 2020-21 will end with negative growth. The revenue target will be missed by a large margin, capital investment will take a hit, the revenue deficit will be close to 5 per cent and the real fiscal deficit will cross 7 per cent. Budget 2020-21 was a disaster at the start and will be a catastrophe at the end of the fiscal year.
The reality is that the economy is in a recession; current unemployment rates are high (rural: 9.2 per cent and urban: 8.9 per cent); anti-farmer laws and retrograde import/export policies for agricultural produce have hindered agricultural growth; the industry sector has not attracted huge investment; exports and imports are in the doldrums because of the government’s protectionist policies and because the world’s economy is limping; and inequalities have grown. India may have earned the prize for being home to the largest number of poor people, overtaking Nigeria. The foregoing is the contribution of the Modi government at the end of seven years!
There will be no V shaped recovery. To search for one will be Vain and to predict one will be Vanity. The Chief Economist of IMF, Dr Gita Gopinath, has stated that the Indian economy will reach pre-COVID levels only in 2025. If there is a recovery of sorts, it will resemble the letter K — some will see their income and wealth grow while the majority will suffer pain and economic loss. That is exactly what happened in the pandemic-affected year (2020-21) as revealed in a study by Oxfam titled ‘Inequality Virus’.
I don’t wish to anticipate the Budget. There is a universal demand for increase in investment in health infrastructure and increase in defence expenditure, and I support that demand. The FM may provide more funds under the two heads. Otherwise, I have no expectations of this government. In the past, they have been exceptionally obstinate and impervious to good advice, and I do not see any change in their approach or behaviour.
I shall make my wish list secure in the knowledge that they will be ignored by the government! In the unlikely event of some suggestions being accepted, it would certainly not be acknowledged!
My Wish List
Here goes my list (and I have deliberately limited it to 10):
1. Impart a large fiscal stimulus to the economy, even if it is belated.
2. Make direct cash transfers to 30 per cent of the families at the bottom of the economy for a period of six months and review the situation afterwards.
3. Devise a rescue plan for MSMEs in order to reach pre-slowdown production levels and recover the jobs that were lost.
4. Reduce tax rates, especially the GST rates, and the crippling taxes on petrol and diesel.
5. Increase government’s capital expenditure. In the current year, the capital expenditure of the central government and state governments are falling woefully short of the budgeted amounts.
6. Lending must be increased. Hence, recapitalize public sector banks urgently and encourage them to lend without the fear that every loan will be probed by the investigating agencies.
7. Protectionism is outdated and wrong. Protectionism has hurt Indian industry. A current account surplus in a developing country is not a matter of celebration. Abandon the bias against imports, re-engage with the world and enter into bilateral trade agreements.
8. Formulate sector-specific revival packages for sectors such as Telecommunication, Power, Construction, Mining, Aviation and Travel, Tourism & Hospitality.
9. Review and rescind amendments to tax laws that are widely viewed as tax terrorism.
10. Review the regulations made by various regulatory bodies and correct the effect of over-regulation.
Since I have no expectations I am prepared to be disappointed on February 1.