About 30 months after the Modi government took office, economic growth remains around 7%. Foreign direct investment in 2016 was a record $25 billion, public investment was strong, foreign exchange reserves are at a comfortable 12 months of imports, inflation stable at 3.4%. But private investment expenditures are weak, domestic demand poor, exports are down, banks and much of the private sector is in heavy debt, two successive droughts left the farmers in weak financial position, and with no funds for investment. The government did little to help by writing-off loans of small farmers or accelerated investment in agricultural assets. Then, demonetisation came as a rude shock, severely hurting the informal sector, small and medium industries, domestic demand, while farmers suffered poor prices for perishables like vegetables and fruits, and poor sales of other crops due to cash shortage. Looming over all this is jobless growth.
The Budget had to address these factors: create jobs, accelerate demand, promote investment, improve indebtedness of enterprises and assets of banks, and promote domestic and export demand. The Budget speech addressed many of these, but in many cases was not whole in approach.
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Tax cuts to MSMEs will help their revival, but banks must be generous in restoring their liquidity, damaged by demonetisation. Consumer demand will improve slowly as money flows back into the economy, but revival of industrial output will take time. While the budget speech expects exports to revive, protectionism by the US as it spreads to other countries may come in the way. The Budget may not signal a speedy industrial revival. However, substantial public expenditures on highways, roads, railways, ports, shipping and other infrastructure might stimulate other industries and lead to job growth, as expenditures proceed.
Agricultural revival despite higher acreage and good monsoons looks doubtful, because of poor investment by farmers and government. Government continues with a selective minimum support price policy that does not match changing consumer demand. Nor does the Budget do much to implement a coordinated water policy for rivers and ground water, signalling warnings about future water shortages. The increased acreage for rabi and kharif may not result in an increase in production. Farmers, especially small ones, will be in bad shape.
The setting-up of another asset reconstruction company is not going to brim down corporate debt as experience with that initiative for banks has shown. It must be speedily imposed and companies must take large losses to reduce debts.
Similarly the modest amount for recapitalising nationalised banks will not improve their balance sheets. The Budget has not followed up the discussion in the Economic Survey about a universal basic income scheme. This could help plug the leakage in the many subsidy schemes. A pilot project would have helped a decision by the next Budget. In its absence, the additional amounts for MNREGA and other subsidy schemes, will help the poor but with considerable waste.
There is no assessment of the devolution of funds for central schemes to the states. This is a major lapse since such decentralisation seems to be the map for the future.
Health and education have received little concentrated attention, badly needed to stop their continued decline in quality. PM’s scheme for pregnant women, however, was imaginative and timely.
The support to rural housing, and schemes for scheduled castes, tribes and minorities, are again timely but perhaps the latter may be inadequately funded.
This Budget seems to be prepared from a wishlist of which items were just ticked-off, it did not have an overarching vision. For example, it continues with state ownership of enterprises, with “disinvestment” for adding to state resources. There is no attempt to improve their autonomy and management. Indeed, an earlier announcement that BJP MPs would now be inducted on to their Boards shows that the PSE’s are nothing but cash cows for political parties.
This is not a path-breaking Budget, rather it continues on the pedestrian path of the earlier UPA government.
The author is former director general, NCAER, and was the first chairman of CERC.
Views are personal