A poverty of ideas
Indian Express
February
05, 2018
Written by Udayan
Mukherjee
The bad news about Budget 2018 is not that
the Sensex tanked 800 points on Friday. That was only a symptom, an expected
reaction to the long term capital gains tax and fiscal slippage. The real bad
news is that Arun Jaitley chose to
make it an election campaign speech without having the resources to back his
promises. This was never going to be an easy budget to pull off. The challenges
were too many, fiscal space next to nothing. Yet, it is in such desperate times
that true reformers find the courage to think out of the box and attempt
something bold. What we needed was imagination and innovation. What we got was
a hollow document, that only looks good on paper. In the cold light of the
morning after, it appeared less attractive than it may have on budget day. As
the Sensex showed.
The only visionary idea of this budget is the
national health protection scheme for 10 crore families. The scale of the idea
is breathtaking. The funding, ludicrous. For a scheme where the requirement
could easily run over Rs 1 lakh crore, the budget provision is Rs 2,000 crore.
Not to speak of the practical difficulties of ensuring quality hospitalisation
in rural India. Now consider this. The government owns 9 per cent of cigarette
maker ITC. It has no business owning a small stake in a private sector tobacco
company. A sale of this stake, easily achieved in a day, would fetch Rs 30,000
crore. Could the FM have announced this divestment as a first round of funding
for this ambitious health scheme? Immediately, the plan would have looked
highly credible and anyway, selling shares in a cigarette-maker to fund a
health programme has a nice ring to it.
Arguably, the biggest drawback of this budget
— unless you are an investor sulking from the long term capital gains tax — is
the slippage in fiscal deficit. Yes, revenues have been constrained by low GST
collections but this again was an opportunity to demonstrate bold thinking. The
government owns a minority stake in Hindustan Zinc which the majority owner,
Vedanta, has been keen to acquire. A sale of this stake would have fetched Rs
40,000 crore, almost wiping out the entire fiscal slippage for FY19. The FM
could have proudly announced that he will stick to the fiscal deficit target of
3 per cent next year, circumstances notwithstanding. This would have sent a
powerful message to the global investment community about our fiscal discipline
and cooled soaring bond yields. As things stand now, bond yields have hardened
further, robbing the RBI of any elbow room on monetary policy. The next move on
interest rates is likely to be up, not good for an economy which is just
getting back some growth momentum.The case is similar in the big schemes
pertaining to the farm sector. The major announcement there is the promise of a
minimum support price (MSP) of 1.5 times the production price, for all kharif
crops. Funding? Zero. Or, to be discussed. Of course, there is time; kharif
crops will hit the market only in October, eight months away, by which time the
agrarian crisis would only have deepened. Rather than this, could the FM have
announced that, using buoyant stock market conditions, it would do an IPO for
the LIC and use the considerable proceeds to set up a rural distress fund that
works through direct benefit transfers in cash, starting now? Yes, but it
required imagination.
This reluctance to sell its non-core assets
is, indeed, baffling. In the year gone by, the government exceeded its own
disinvestment target to garner Rs 1 lakh crore. Far from being emboldened by
this, it has set a timid Rs 80,000 crore target for this year and said
categorically that Air India is the only strategic sale that will be attempted.
Why? If the family silver is not sold at a time of need, what good is it? A
year down the line, GST revenues would have picked up, economic growth would
hopefully have revived, leading to an even greater buoyancy in tax revenues and
these measures would not be required. But our farmers need help and our youth
need jobs, today. They have been waiting for four years already.
Resources were also needed to support two
other major challenges. Unemployment and the moribund capex cycle, the two
being somewhat interlinked. When businesses expand and set up new capacities,
they hire more people. Not when they are given provident fund sops, as
attempted in the budget. Some baby steps on sectors like textiles and footwear
were taken, but not enough. We needed a bigger, well-funded plan to revive
exports that would have created a few million jobs.
Instead, Budget 2018 became an election
speech, littered with promises, old and new. Many of these promises will not
see the light of day but at least they were made to the right people: Farmers
and villagers, as opposed to CEOs and investors. Yet, what worked in 2014 may
not work today; then there was unbridled hope, now replaced by growing
scepticism. Arun Jaitley, while hoping this is not the last budget he will ever
present, could have displayed a much greater boldness. In that, he could have
taken a leaf out of his boss’s playbook.
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