Both consumption and investment need reviving, and govt needs to move to a UBI while subsuming subsidies in this
It is not clear whether finance minister Arun Jaitley will present a full-fledged budget on February 1 or whether he will, as per convention, simply outline the government’s intent in the new year and just ask Parliament for enough funds to keep various schemes going till the new government presents its budget; that is, essentially, a vote-on-account. While any attempt by Jaitley to either outline his government’s intent or even come up with new proposals will be criticised as the government trying to woo voters, it is important to keep in mind how earlier finance ministers have dealt with ‘interim budgets’. As FE reported last week, in 2004-05, Jaswant Singh extended the deadline for fiscal benefits to power projects and, amongst others, waived long-term capital gains taxes for listed entities. While the UPA’s Pranab Mukherjee didn’t announce any tax proposals, he had rolled out a Rs 40,000 crore stimulus package just a few months before. And, after saying the economy needed interventions that “cannot wait for the regular Budget”, P Chidambaram cut excise duties on various capital and consumer goods in FY15 and even accepted one-rank-one-pension for the armed forces even though the Rs 500 crore allocation for it was nowhere near enough.
Though the headline numbers don’t reflect it, the economy is quite fragile with consumer spending growth—the biggest growth-driver—flagging for several quarters now and private investment still not taking off. While many of the potential drivers, such as excise duty cuts, are no longer in the finance minister’s control—these are now with the GST Council—there is still a lot that needs to be done. Fixing telecom levies—old telcos have, once again, renewed their demands for a moratorium on payments to the government—is an important issue and is best done through the budget since it represents a policy change; ditto for a new minerals policy that has financial implications since government levies need to be slashed if mining is to be globally competitive. The start-up tax, currently in the news, needs to be removed and while the reversal in the e-commerce policy isn’t budget-related, it is going to be a big dampener when it comes to fresh FDI.
While it is not clear whether the government wants to do much about sectors like telecom, it certainly needs to move ahead on an incomes-transfer policy for farmers—a quasi Universal Basic Income (UBI)—at the earliest since it is clear the MSP plan has failed to take off with prices of most commodities at 20-30% below the MSP. The UBI, even if the amount is small, however, cannot possibly be funded out of the budget since it could cost anywhere between `2-3 lakh crore. The only way to do this is to subsume various existing subsidies—the Central and state government spend Rs 2 lakh crore per year on various agriculture subsidies—and to replace these with a flat UBI; the additional advantage is that, while most existing subsidies such as those on fertiliser or electricity (from the state governments) are cornered by large farmers, a UBI will reach all farmers and, if the Odisha government’s Kalia is used as a template, this can also be extended to farm labour and tenant-farmers. This is critical for reviving the rural economy, and until that is done, the overall economy isn’t going to be able to revive. And, while the Opposition will try to portray this as an election gimmick, since the government has increased direct benefit transfers (DBT) from `7,500 crore before it took over to `205,000 crore so far in FY19, it is clear the government has been moving in the direction of UBI anyway.