How the Indian Budget 2020 is an Exercise in Wishful Optimism Amidst Doom and Gloom
Wishful Thinking, Wild Optimism, and Waving of the Magic Wand
It is well known that the Indian Economy is the midst of a severe slowdown which some economists have likened to being in a full-fledged recession.
With growth at an all time low and with high unemployment and stagnation and inflation, the doom and gloom that was forecasted for the near future is leading to a worried India Inc. and other stakeholders. It was for these very reasons that the Budget for 2020-21 presented a couple of days ago was widely expected to address the slowdown in the Indian Economy.
However, except for the Budget speech being the longest in the history of Independent India, overall the exercise was more of a wishfully optimistic excursion rather than any serious attempt to arrest the slowdown.
Indeed, right from the highly fanciful expenditure projections for the next financial year that are not matched by the reality of revenues based on estimates, to the Magical Thinking and Creative Flights into fancy as evidenced by the revised Income Tax rules, there was nothing to suggest that an On the Ground attempt was being made to fix the economy.
Some Practical Measures and Announcements that Need to be Lauded
Having said that, there were some notable announcements that caught the attention of experts. One of these was the high amount of money that was allocated for a National Project on Water, which given the Looming Water Wars in Indian Cities and Towns was laudable.
Moreover, there were the stated announcements of more spending on Infrastructure that was again commendable given the fact that the dilapidated state of the Indian Infrastructure meant that there was an urgent need to address this issue.
In addition, there were the announcements related to Disinvestment including the Do or Die push to privatise Air India the divesting of stakes in the LIC or Life Insurance Corporation of India. All these measures, though ambitious, need to be praised as they are steps in the right direction.
On the other hand, the actual implementation and execution of these policies is the Proof of the Pudding as the Indian Experience since Independence has been one of lofty goals with very little by way of actual progress on the ground.
This is borne out by the announcement of more Smart Cities, though there was no word on what happened to the 100 or so Smart Cities that were announced in 2014.
The Fiscal Estimates do not correspond to Reality based on Last Years Accruals
Therefore, it is the case that the Indian Budget is more of a fanciful thinking exercise. For instance, as mentioned briefly earlier, the Fiscal Deficit arising of the Shortfall between Expenditure and Revenues that has been estimated for the next financial year is anything but realistic as the Actual Collections for this year indicate a Humungous Shortfall.
Indeed, any serious economist would immediately notice that the wildly optimistic estimates for next year are anything but wishful thinking.
Though the Finance Minister tried to account for the shortfall through Borrowing, the abandoned policy of raising money through Sovereign Bonds that was mooted last year, indicates that any borrowing can not only lead to Inflationary Pressures but also to resistance from the Internal Stakeholders.
Moreover, the Indian Government is dipping into the Reserves of the RBI or the Reserve Bank of India apart from delaying the payment of the States share of the GST (Goods and Services Tax) collections.
Indeed, these actions and ad hoc financing arrangements are expected to continue this year as well which can raise questions about the intentions of the government as far as the Federal Nature of the Indian Polity is concerned as well as maintaining the Independence of the RBI.
The 15th Finance Commission, Federalism, and Confused Tax Rules
Talking about the Federalism and the relations between the Centre and the States, it is the case that the 15th Finance Commission has cut the percentage of the share of the revenues from the taxes due to them by the Central Government of the Southern States that were deemed to be doing well when compared to their North Indian counterparts.
While this measure is certainly controversial as it rewards the poor performers at the expense of the good performers, it also has the potential to stoke Centrifugal Tensions that can lead to adverse consequences.
On another note, the Income Tax rules that have been announced are an exercise in Creative Accounting as the various sub rules to the main rules indicate that the real savings for the Taxpayers would be more or less (less, in some slabs) than the previous years.
It is beyond our comprehension as to what the FM was trying to do with these rules. In addition, the moves to divest stake in LIC did not have any elaborate explanation as to how and why it would be done.
This has led to confusion and it is hoped that the FM would clarify them in the coming days.
Last, as has been the theme of this article so far, the entire budgetary exercise this year has the bipolar aspect of being wishful and at the same time, practical in parts.
Maybe like the many poems and intonations that the FM mentioned in her speech, the Budget for this year was intended to be Surreal in its ambition, yet little by way of serious action on the ground.
To conclude, we hope that the Budget which would be debated in Parliament in the coming debates would clarify some of the doubts that are swirling about the same.
Authorship/Referencing - About the Author(s)
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