Union Budget 2021: Need to move beyond the chant for real effect

One of the more entertaining parts of Budget day is what comes after the speech. This is when anchors and journalists press the corporate grandees in their studio to rate the finance minister’s offerings on a scale to 10 and what they think those will achieve. Many thump the table each year no matter what was revealed (it would be instructive to go back to their scores of previous years and match them to what effect the Budget announcements actually had), some sit on the fence and a rare few say what they think. 

The reason why candour is rare is the fear, which is valid, that honesty may not only not be the best policy; it is in fact guaranteed to invite trouble. We should consider this when determining, based on what was said on the channels yesterday, whether the Budget was good, bad or indifferent. 

Prannoy Roy on NDTV joked about this with his panelists, asking everyone if they had already decided to give Sitharaman 12 out of 10, or would they prefer to be honest.

It was only partially a joke, of course. The earnestness with which the numbers and the data and the projections are analysed would leave one to believe that the exercise is more serious than it actually is. It is not discussed merely as a statement of income and expenditure, it is discussed as a sort of vision document, stimulating various sectors (in his speech afterwards, the prime minister said that the Budget contained the vision for Atmanirbharta).

“For a $5-trillion economy, our manufacturing sector has to grow in double digits in a sustained manner," Sitharaman said, before going into the details of what the government would spend on the PLI (production linked incentive) scheme, which would help achieve this growth. It would be instructive to look at this paragraph from 2016 on the Make in India website: "Led by the Department of Industrial Policy and Promotion, the initiative aims to raise the contribution of the manufacturing sector to 25 per cent of the Gross Domestic Product (GDP) by the year 2025 from its current 16 per cent.”

The World Bank says this actually fell to 15 per cent in 2017, to 14 per cent in 2018, and to 13 per cent in 2019. It is possible that it fell further in 2020 given the hit manufacturing took in the lockdown. In the same period, Bangladesh’s share of manufacturing rose from 16 per cent to 19 per cent, and Vietnam’s rose from 13 per cent to 16 per cent, showing that it was possible. What did we do wrong? How are we correcting it?

Writing in this paper ('Despite 'Make-in-India' push, industry share in GDP hit 20-year low in 2019’, 19 November 2019), Krishna Kant showed that industry (including manufacturing) had fallen from 30 per cent in 2014 to 27.5 per cent in 2019. 

What sort of grand policy produces the opposite result of the one that it sought to achieve? What failed and how would this be corrected? We do not know, and one reason for this is that the government does not accept it failed. You cannot correct something that you do not even in the first instance accept to be true. And so we move on lightly, from Make in India to the PLI scheme to Atmanirbhar, and make pronouncements in the Budget which assume that the chanting of words is producing some external effect.

Much was made of the fact that this was a once-in-a-century Budget, given the events of 2020. The speech actually turned out to be an hour shorter than her magnum opus of 2020, but the point being made was that Covid-19 had introduced an element which would need special actions from the government, because the pandemic was a once-in-a-lifetime shock.

But the problem precedes 2020 entirely. GDP growth began to deflate starting January 2018 and fell consistently over two full years before the lockdown was triggered. What is wrong with the economy that has put it in this trajectory? What study has been done on the effect of ‘formalisation’ — as the process of squeezing the informal sector is called —  on this part of the economy? What are its implications for the future? These are questions that are not asked and not answered. 

The prime minister’s admirers, of whom many are economists, have retained their faith in his ability to produce a transformational change in the economy. We just saw his eighth Budget, but it would be difficult to say that such a change is visible. We are carrying along down the same path as we took three years ago, but not talking about why. Instead, we are offering commentary and scores on a Budget which, even if its numbers are accepted as being true, has only a marginal bearing on the reality of this nation’s economy.