Sanchi Gupta is an intern with Outline India. She visited the Seminar on the Union Budget 2017-18 : Reforms and Development Perspective held in the Taj Mahal Hotel, New Delhi – hosted by the Centre for Policy Research on the 6th of February 2017.
From ‘A balancing act’ to ‘No big bang reforms’, a lot has already been said about the BJP government’s fourth Budget. Putting the rhetoric aside, it is important to situate the Budget within the current economic and political scenario, and explore the facts behind the fiction.
The Context: Not a “bright spot” anymore?
Post-demonetization, the Economic Survey has projected that the economy will grow at 6.5%, down from last year’s growth rate of 7.6%. Furthermore, unofficial estimates claim that four lakh jobs have been lost or temporarily affected in the informal sector since demonetization. Simultaneously, the global economy seems to be witnessing a rise in protectionism. India’s exports have been continuously declining since December 2014 and the manufacturing sector is stuck at 17% of the GDP.
Many analysts assumed that this year’s Budget would ride the populist wave in order to make amends for demonetization and score some political points before the upcoming elections in Uttar Pradesh. It has comes as a surprise to many that the Finance Minister has chosen to err on the side of caution. Fiscal prudence seems to have trumped populism.
The Relationship between the State and Big Businesses
Both Dr. Shekhar Shah (Director-General, NCAER) and Dr. Pratap Bhanu Mehta (President, CPR) have argued that despite the apparent liberalization of the Indian economy in 1991, India has failed to adopt a liberal, market oriented ideology. Every successive government, despite the party that is in power, continues to protect the interests of “big capital”, which unfortunately is rid with corruption and no longer “the engine of change” that drives the Indian economy.
The Economic Survey has also accepted the need for a renegotiation of state-capital relations, in the context of inadequate state capacity and the ambiguous role of the private sector. By cutting the tax rate for medium and small enterprises with a turnover of up to 50 crore rupees and promising to foster “a conducive labour environment wherein labour rights are protected”, the Finance Minister seems to have taken a welcome, albeit incremental step, away from appeasing only “big capital”.
More Funds, More Leakages
The Mahatma Gandhi National Rural Employment Guarantee Scheme, which was earlier described by Prime Minister Modi as a “living monument of the UPA’s failure”, has received its highest allocation yet – 48,000 crore rupees. The allocation for rural sanitation has also increased by 18%, presumably to fulfill Prime Minister Modi’s emphatic promise to create an open defecation free nation by 2019.
However, S.K. Shanthi (Director, IDF) has estimated that total social sector spending, as a percentage of the GDP, remains a dismal 7.03%. Furthermore, despite the transition from the Planning Commission to the NITI Aayog, the government has failed to establish an effective evaluation and monitoring system to measure the impact of its public policies.
Stealing from the States?
When the NITI Aayog was established, the BJP government declared a grand strategy of ‘fiscal federalism’ and a fairer relationship between the Centre and the states. Despite the fan fare at the time, the central government seems to have forgotten its promise and the NITI Aayog has faded into the backdrop. As Dr. Rathin Roy (Director, NIPFP) has pointed out, stealing from the states continues even in this budget. While the income tax rate for those earning an annual income of 2.5-5 lakh rupees has been halved, a surcharge of 10% has been levied on individuals with declared incomes between 50 lakh and 1 crore rupees. Since it is a surcharge, the revenue accruing from this additional levy does not have to be shared with the states. However, with the implementation of the GST, it is expected that the Centre will compensate for the loss in revenue suffered by the states.
On the ‘road’ to development
India will invest around 4 trillion rupees to create and upgrade infrastructure, which comprises roads, railways, waterways and civil aviation. It is hoped that this will provide the much-needed boost to the manufacturing sector and encourage job growth. While there is definitely an increase in the allocation to transport, the numbers represent a statistical anomaly since the Railway Budget has been merged with the General Budget for the first time, since independence.
The Consequences: Are we ready for re-monetization and the rollout of the GST?
In 2017, the Indian economy will have to prepare for both re-monetization and the implementation of the GST. While both found brief mentions in the Finance Minister’s speech, the Budget has not laid out an explicit roadmap for dealing with these changes.
After reading between the lines, one finds that the inherent approach of the Indian state towards the political economy remains unchanged. The general consensus seems to be that it is acceptable for gross inequality in income to exist, as long as the state makes an earnest effort to redistribute some revenue to the millions who form the underbelly of the Indian economy.
Prime Minister Modi has said that this Budget aims to fulfill the “dreams” of every section, including the poor, the farmers and the underprivileged. At the end of the day, however, we must remember that the budget is merely a fiscal document, not a panacea for all of India’s problems.
Roy, Dr. Rathin. Prudent in practice, extravagant rhetoric. February 2017.
Bhaskar, Utpal, and Jyotika Sood. Budget 2017 Jaitley gives infrastructure a massive push. February 2017.
The Indian Express. Economic Survey Highlights. January 2017.
Rao, Govinda. “The Message in the Median.” The Hindu, February 2017.
Mohan, T.T. “A Budget few can quarrel over.” The Hindu, February 2017.
Balakrishnan, Pulapre. “Politics trumps ideology.” The Hindu, February 2017.