Expert Opinion on Union Budget 2019 Expectations: In five years, many more intentions were expressed by Prime Minister Narendra Modi but not all of them accomplished so far.
- By Charan Singh
Union Budget 2019 Expert Opinion: The Budget is not only a statement of accounts, of Receipts and Expenditure but also a policy statement of the intent of the Government to resolve various problems facing the country. In the Budget of 2019, there is a special occasion. First, the present regime has completed nearly five years in the Government and would like to use the opportunity to use it as a report card for all to evaluate their performance. The second, supplementing the first, given that in recent elections in the States, unexpected defeat at the polls reinforces the need to explain to the electorate, about the rationale of the policies that were initiated, and some implemented in the last five years.
Actually, from 2014, straight after assuming power, the present Union Government had initiated very bold measures. The Jan Dhan Yojana announced from the ramparts of the Red Fort in August 2014 was successful in opening banks accounts of nearly one-fourth of the population – a feat accomplished in about two years which earlier had not been completed in nearly 70 years after Independence. The opening of Jan Dhan accounts was used to extend social security measures and insurance products, and extend small loans under the aegis of MUDRA loans as well as a refinancing facility under MUDRA Bank. Further, in continuing of the same principle of having a bank account, many new facilities were provided to the micro, small and medium enterprises (MSMEs).
The dismantling of the Planning Commission again announced from the ramparts of the Red Fort, and the establishment of NITI Aayog established a new paradigm in a federal relationship. This was reflected in the strong resolve of having one tax and rate, across the country, which was implemented under the Goods and Services Tax (GST), despite stiff opposition. In the last few months, rationalization of rates under GST only reflects the sensitivity with which the Union Government and State Governments, work together in the GST Council.
The low tax collection, as a percentage of GDP, reveals that tax evasion and avoidance is pervasive in the country. After a series of failures of tax amnesty schemes, a sledgehammer approach of demonetization of 86 per cent of the currency was implemented in Nov 2016. This was not an easy decision to take and implement. Consequently, the number of people filing tax returns increased along with electronic transactions, and, anecdotally, fear of holding of newly introduced high denomination note of Rs.2000 was felt across the economy.
In five years, many more intentions were expressed by the Government but not accomplished. In any 101 class of economics, it would be discussed that the aim of the fiscal policy is to enhance employment and provide impetus to economic growth. Thus, for the Government, first and foremost, is providing jobs in the young demographic country. This task can only be accomplished by further strengthening policies for MSMEs. While efforts have been made in this direction, as alluded earlier, but concrete results have yet to be established. The Government could now consider concerted efforts, like setting up an umbrella national institution on MSMEs dedicated to devising policies and evaluating them in context of providing employment.
In fact, MSMEs cover a very wide set of activities, and these vary significantly from state to state. Therefore, a string of state-specific MSME institutions, on lines of different agriculture universities for each state, would be required. These respective state MSME universities would educate local entrepreneurs and also undertake research in state-specific industries, as well as providing support in terms of marketing of produce, and sourcing necessary inputs. These initiatives would need fiscal provisioning.
There are some schemes which were introduced in the last five years but need to be strengthened. The concept of smart cities was advanced but could not be completed. Probably, given limited resources, of capital, labour and technology, need is to identify, on a pilot basis, a city per state, and develop it before embarking on another. Similarly, affordable housing schemes for rural and urban areas were introduced with the objective of providing all-weather shelter to each family by 2022. The doubling of farm income was another initiative which needs to be completed in the next three years. To provide for these initiatives would imply making budgetary provisions for additional expenditure.
To strengthen the banking system, the Government has initiated various reforms. The governance structure of banks is being strengthened, as well as provisioning for adequate capital. Essentially, need is to examine and challenge complete set of Basel norms and their applicability to banks in India, ten of which boast the history of more than a century. In this context, the immediate challenge of loan waivers and its implications for the banking system has to be addressed along with the liquidity crunch faced by NBFCs. The interwoven fabric of loosely-regulated NBFCs and well-regulated banking sector is another area which needs to be scrutinized. Finally, the nexus between industry and banking reflected in rising non-performing assets, and sometimes spilling into frauds also needs to be investigated. To ensure the credibility of the banking sector, some financial support may have to be made from the ensuing Union Budget.
The development of North-East is yet to take despite announcements and intentions of various Union Governments. The potential of North-East is immense but a granular approach, given a diversity of natural resources, as well as different stages of development and banking penetration requires a focused strategic plan for each state. The creation of conducive eco-system would necessitate the development of basic infrastructure which would require a substantial investment before returns begin to emerge.
The budgetary requirements in any emerging country are large and expected to run into deficits. The breaching of deficit targets should not be treated as fiscal profligacy, but the overall spirit of fiscal prudence should be considered. The gross fiscal target of 3 per cent of GDP was computed and popularized by the Maastricht Treaty, responsible for countries coming together under the Euro area. These were mainly advanced countries, rich and sparsely populated. Should an emerging country, especially unique in recording high demographic dividend be constrained by the same rules, especially when Euro countries have been liberal with rules themselves? Rather, the litmus test should be employment generation of fiscal expenditure and policy, because unemployment does not just dent tax collection and consumption but can also result in social unrest, delayed marriages and low fertility rates. India needs to devise its fiscal policy and argue with the rating agencies rather than always succumb to pressure from rating agencies, whose track record is tarnished, and loyalties unknown.
The Parliament and the Government could consider having election cycle that does not disrupt the budget cycle. As India follows a financial year from April to June and given that the Budget is presented in February, it would be economically rational to complete the election process by end-November, giving at least two months to the new Government to formulate and present the new Budget. The break-up of the Union Budget into interim or on Vote-on-accounts, in an election year, only disrupts the growth process and smooth flow of annual budgeting.
(The Author is CEO of EGROW Foundation, a Noida-based think tank. Views expressed are his personal)