Devaluing Budgets

While transiting resplendently from the passé briefcase to the bright, trendy bahi khata for carrying her Budget papers, the new Finance Minister Nirmala Sitharaman decided to give the short shrift to what must be at the heart of the Budget. Neither the two parts of her speech nor the explanatory memorandum contain statements of government income and expenditure by major heads; there is only a passing reference to the deficit.  Some learned commentators have hailed this as a welcome change, but I must concur with the observation of the former finance minister P Chidambaram (with whom I often disagree): “Has there ever been a Budget speech that does not disclose total revenue, total expenditure, fiscal deficit, revenue deficit?” I do so not because I am an “accounting economist,” but because Article 112 of the Constitution expressly mandates the government of the day to lay “before both the Houses of Parliament a statement of the estimated receipts and expenditure of the Government of India.”  The expenditures include all those charged to the Consolidated Fund of India, both constitutionally required and others.

 
The Budget document has these figures, but one has to trawl through it to find them. That gives rise to the suspicion that this is a deliberate exercise, because only the patient few would bother to do so and talk about the devil in these details.  The rest will be content with ooh and aah and call the Budget a vision thing, not an accounting exercise. This has already happened, but we must ask whether it bodes well for a functioning, accountable democratic system of governance. More on this later, but first some salient critiques of what is presented as the Budget.

 
The Budget and the Economic Survey that precedes it are logically and correctly supposed to be conjoined twins. The latter is expected to lay out strategies in a what-if manner and the former is an action plan based on it. In the present instance, that connection is blurred and several mismatches are visible. The Survey takes 2024-25 as the target year for the $5 trillion economy, while Ms Sitharaman restricts herself to saying “it is well within our capacity to reach $5 trillion in the next few years” (para 6).  That is a statement of a possibility, not a target.  Her projections are based on a real growth rate of 8 per cent, while the Survey uses 7 per cent.  That single percentage point could make a world of difference to the projected figures of revenues and deficits, but then discrepancies could always be rationalised ex post! The Survey mentions private investment and exports as growth engines, but the Budget does not provide any kick-start for investments and emphasises import reduction through customs barriers. 

 

The measures the Budget highlights — the Reserve Bank of India (RBI) to control housing finance institutions, guarantees for financially sound non-banking finance companies, interchangeable use of Aadhaar and PAN for tax returns, diluting the definition of public sector enterprises and government borrowing abroad, among others — are touted as reforms, but these administrative steps could have been taken any time.  Their impact on reviving the stalled economy would be at best marginal. More seriously, the Budget revises the revenue estimate downward by a whopping Rs 1.6 trillion from that of the Interim Budget before the election and yet manages to project a deficit of 3.3 per cent, down from 3.4 per cent earlier. The lowering of revenue estimate is an implicit admission of the slowdown, and needs to be explained and analysed. The Budget just blandly mentions it. The deficit reduction could be due to the higher disinvestment (most probably through selling government equity to the richer public sector firms), higher RBI dividend and as has been the custom, making certain expenses off-budget.  The more grievous consequence would be further shrinking of already lower investments and outlays in critical areas such as health and education.  Even in agriculture, the government’s acknowledged primary concern, the hyped increase of about Rs 63,000 crore (92 per cent over the previous year) is due mostly to the Rs 55,000 crore higher allocation for the PM-Kisan income transfer, leaving only token amounts for research and investments. Clearly, the government that talks of boosting farm incomes walks more comfortably with welfare measures.

 
For years now, Budget deliberations in Parliament and in public forums have been desultory. The Survey now comes just a day, not a week, before the Budget.  Reactions are predictable and ritualistic: Government spokespersons, from the prime minister down, call the Budget a judicious mix of growth and social justice.  The opposition terms it anti-people.  Assembled business leaders carefully hedge their bets and give the Budget a safe score of 7 out of 10.  But for the numbers in the Budget and names of finance ministers, we could just as well watch previous years’ reruns!
 
What is remarkable about Budget 2019-20 is that it does not even make the pretence to be the financial statement the Constitution enjoins it to be.  The Modi 2.0 government, flush with its famous victory at the hustings, knows that it can pass anything it wants in the house that matters, the Lok Sabha.  That is a travesty of accountability, tantamount to maximum government, governance be damned.

 
The writer is an economist