Budget 2021-22

 Budget 2021-22 has received widespread welcome. The habitual naysayers have mostly been unable to pick holes in the budget. This is surprising since the budget is a political document that has no guarantee  against criticism. 

There are two reasons why the Finance Minister has escaped criticism this time. COVID-19 has conditioned us to be prepared for a higher than usual Fiscal Deficit. In fact, the general feeling is that the government should have spent more and that the FD must be more. The second reason is everyone was expecting a COVID Cess to improve government's finances. The absence of an expected negative constitutes a positive. Thus, though a budget traditionally attracts many justified and unjustified criticisms, Budget 2021-22 has a teflon quality that ensures that no criticism sticks to it.

However, some persons always go overboard in either direction. Shankar Sharma, co-founder, First Global exclaims that this budget is equivalent to Kapil Dev's 4 sixes in the Lord's test. P.Chidambaram bemoans that "this is a letdown like never before." Both must be aware that what they say is nowhere near the truth.

There are some ominous portents. External debt was raised in the current year for Rs. 54,522 crore against the Budget Estimate Rs.4,622 crore. India's economic strength has always been the fact that our borrowings are mainly domestic. Foreign borrowings are exposed to currency risk which might upset our plans.

Revenue Deficit for 2021-22 is budgeted at 5.1% of GDP. This is uncomfortably high. Revenue Deficit crudely means that we are borrowing to pay revenue expenditure like salaries and pensions. If we borrow money to meet revenue expenditure, how do we generate funds to meet repayment liability? We will have to borrow more to repay the present borrowings. A typical Ponzi scheme!

Rating the Budget

 There are different methods which are used to rate a budget. One easy method is to note the response of a prominent person and then to interpret the message the person betrays. Prannoy Roy is a fail-safe bellwether.

If Roy criticises a government move, one can safely conclude that the move is positive. If he is disappointed, it means the government is on the right track. 

Today he was extremely unhappy that the panellists in the post-budget discussion on NDTV Profit welcomed the budget wholeheartedly. A tax expert gave 7 to 8 out of 10 for the budget. The discussion was anchored by Srinivasan Jain who always obliges his boss. Even he could not extract negative comments from the discussants. Roy nudged Kiran Mazumdar - Shaw saying that she always comes up with the best observation. All that she could say was that she expected some incentives for R & D in private sector which were not offered.

In hindsight, it appears that everyone was expecting introduction of Corona cess. It was a big relief that it is not there. Roy had to find something negative. Otherwise he would not justify his raison-d'etre. He found two and not just one. The first criticism from him was 'what matters is implementation' and not the contents of the budget ! This is true for any budget. The second denunciation was that some expenditure was related to 3 or 5 years and not just one year. "She cleverly mentioned the amount and then sotto voce said 'in three years' " Prannoy Roy knows this trick because he employs this often.

The Finance Minister must be happy that her budget has made Prannoy Roy unhappy.

Numerical nihilist

Prof. Jayati Ghosh, a development economist, has blamed the central budget 2020-21 as containing only lies. "Every single number in the budget is a lie."

How so? According to the learned professor, since the budget was presented on February 1st itself, the figures for 2019-20 contained in the budget include data up to December, 2019 only and estimates for remaining three months. Does the professor want accurate current figures before the budget is presented? Is it possible?

The professor ought to know that even the figures up to Dec 31 are only approximate. It is natural that numbers undergo a lot of revisions and corrections in a country of our size. Comfort with approximations is one of the requirements for a practical economist. Is discomfort with all numbers a prerequisite for a JNU professor?

Prof.Ghosh claims that current slowdown is worse than 1991 and 2008. One may respond to her with her own argument. What are the numbers in her calculations which have enabled her to come to the conclusion about the severity of current slowdown? Are they not a bundle of lies?

"Every single item of receipts, the revised estimates for what they are spending this year and all what they have received this year is a lie."

Budget

The Budget for 2018-19 presented today is both unrealistic and disappointing, at least in parts.

The Finance Minister has said,

"59. We will launch a flagship National Health Protection Scheme to
cover over 10 crore poor and vulnerable families (approximately 50
crore beneficiaries) providing coverage upto 5 lakh rupees per family per
year for secondary and tertiary care hospitalization. This will be the
world’s largest government funded health care programme. Adequate
funds will be provided for smooth implementation of this programme."

How much has been provided for this welcome scheme? Hardly Rs.4,000 crore as mentioned by a Finance Ministry spokesman. If every family claims the entire amount, the amount needed will be Rs.50 lakh crore. If only 10% claim is there, it will be Rs.5 lakh crore. Compare this figure with the total budgeted expenditure of Rs.24.42 lakh crore. This is a good scheme. But funding will be a herculean task. The claims will be routed through public sector insurance companies. This is a recipe for an insurance company to go bankrupt. It is interesting to note that the budget also says three public sector insurance companies will be amalgamated ! The challenge will be to implement this scheme successfully. There is no doubt that the underprivileged deserve such a scheme

The budget is disappointing because even revenue deficits are ballooning. Ideally and as per FRBM Act, there should be no revenue deficit. But what is happening? The budgeted revenue deficit for 2017-18 was 1.9% of GDP. According to Revised Estimates, it is 2.6% It is projected at 2.2% for 2018-19. This is shameful. Revenue Deficit crudely means that GOI is borrowing money to pay, say, salaries to employees. This is not budgeting. This is reckless spending.

Budget

The Budget 2017-18 presented on February 1 is essentially an interim budget. GST will not be in place before July 1st. Impact of demonetisation is not yet clear. Unclear past and uncertain future have made the budget more unrealistic than usual. Under these trying circumstances, the Finance Minister has done his best. One should pity the FM. It is like blindfolding a person, keeping him in an unknown place and asking him which direction he wants to take.

India is suffering from three critical deficits: jobs, ethical behaviour and innovation. The budget seeks to enable creation of more jobs through greater spending on infrastructure and giving tax concessions to MSMEs which are the major fountain of jobs. It is unrealistic to expect the FM declare how many jobs will be created in the process. Number of new jobs will depend on where we are in the continuum between jobless growth and job-oriented growth.

Black money partially reflects our low regard for ethical behaviour. In the absence of immediate and stringent punishment for unethical behaviour, tax-compliance is unlikely to improve even if tax rates are brought down substantially. Allowing Vijay Mallya to emigrate and disallowing charge-sheeting of Marans are indicative of our tolerance for unethical behaviour. Government may plead its helplessness since there was no look-out notice for Mallya and the special CBI judge may blame the ineptness of prosecutors, but the fact remains that decriminalisation of our society is not in our priority list.

Encouragement of innovation like R & D has not attracted FM's myopic attention. Growth can be sustained only through incentivised innovation.

Economic twin-deficits of Fiscal Deficit and Current Account Deficit are fairly under control. They may go for a toss in case oil prices head north. FRBM Act originally contemplated bringing the Revenue Deficit to zero. It is unlikely to happen any time soon. This means the government is borrowing funds to pay salaries and interest on loans. Revenue Deficit reflects only recklessness past and present.

Government is likely to present another budget while introducing GST. That will test FM's acumen much more.

One of the TV channels interviewed Jim O'Neill, the creator of acronym BRIC, around 1 p.m. (IST) on the budget day, that is around 7-30 a.m. in London where he was. He might have just then woken up. Asked for his impressions about the budget, he said "nothing spectacular about it . Nothing very bad either." I suppose that applies to any budget.

A quick look at the budget

Budget 2016-17 has evoked more than normal interest among the public. In turn, it has proved to be laudable in parts and laughable in parts.

Emphasis on rural development is overdue. At the same time, conscious omission of any reference to 'smart city projects' is self-defeating. It is noteworthy that investments in Asset Reconstruction Companies are encouraged by allowing sponsors to have even 100% ownership and permitting 100% FDI in ARCs. Throwing open Securitisation Receipts to entities other than Qualified Institutions bristles with risk to ignorant investors. Allotment of Rs.25,000 crore for recapitalisation of PSBs is less than peanuts in the face of more than Rs.5 lakh crore of bad debts.

Every new scheme will have a sunset date and outcome review. The government wants the rural income to double by 2022. Who will be in power then? The government is only pulling wool over our eyes. We are the eternally gullible folks.

Clean Energy Cess is renamed as Clean Environment Cess. Department of Divestment becomes Department of Investment and Public Asset Management. Massive reforms, indeed!

Rs.100 crore for celebrating 100th birthday of Deen Dayal Upadhyay and Rs.100 crore for celebrating 350th birthday of Guru Gobind Singh ! Whose money, yours and mine. We know the government misspends money. But so brazenly?

It may be good that the budget is political, but not populist. But it is bad that it is only a political document without much economic sense. Revenue deficit of Rs.3,54,015 crore to be met mainly through borrowings and not loan recovery or disinvestment is a sure indicator of continuing fiscal imprudence.

Budget 2015 - 16

I had reservations about Arun Jaitley's first full-fledged budget till I saw Manmohan Singh's comment. As The Hindu reports, he has said, "My worry about the budget is that it has good intentions but it does not have an adequate road map and framework to implement the initiatives".

Good intentions are anathema to Manmohan Singh and P.Chidambaram. So the words in italics (italics mine) convinced me that this year's budget is intentionally different from the  budgets for past ten years.

However, good intentions alone are not enough. There are many proposals which need to be meticulously followed up by the Finance Minister lest they remain only as promises. For example, 5 new Ultra Mega Power Projects are proposed this year, that too in Plug and Play mode. Nice to hear. Our experience is not reassuring. If earlier budgetary commitments had fructified, we would have had 12 UMPPs in 2012 itself. We now have only two.

The government has accepted the 14th Finance Commission's recommendation and therefore 42% (instead of 32% as earlier) of net proceeds of union tax revenues are transferred to states. Correspondingly, plan and non-plan assistance to states has been pruned. This sleight of hand would not have been foreseen by the Finance Commission.

Borrowings account for 24% of government's receipts. Low tax-GDP ratio continues to be worrisome. Revenue loss from direct taxes is Rs.8,315 crore. There is gain in indirect taxes for Rs.23,383 crore. This is undeniably regressive.

Service Tax goes up from 12.36% to 14% This effectively means that cost of services increases by 1.46% rightaway. Because service tax is now levied almost on all monetary transactions, the inflationary impact is all too sinister. As if this is not cruel enough, the Budget has indicated that a 2% Swatchch Bharat cess on service tax may become operative if necessary.

Added on 3rd March:
Narendra Modi has praised the budget (does he have a choice?) as progressive, positive, practical, pragmatic and prudent (5 p's?) Would he tell us what has happened to the much vaunted 3p company promoted with Rs.5,000 crore corpus in the 2014-15 budget presented by Arun Jaitley? (3p was supposed to stand for PPP, the infrastructure model.)

Constrained Budget

Excessive expectations cannot but lead to disappointment. It is no wonder therefore that popular reaction to the 2014-15 budget presented by Arun Jaitley is rather muted.

The speech was long and dreary. However the message was loud and clear. Though it was his maiden budget, the Finance Minister did not act like a tyro. Arvind Mayaram, the Finance Secretary, has perhaps ensured continuity in government's approach despite change in the ruling party.

Constrained by legacy and handicapped by short time (for preparation), the budget was as good as possible in the circumstances. Nevertheless, there are questions to be raised. For example, should the government allocate Rs.200 crore for putting up Sardar Patel's statue? Hopefully, someone would seek judicial intervention to arrest unconscionable waste of public money. There is no need to compete with Mayawati and splurge on statues.

Jaitley, true to his character, has been magnanimous in not blaming his predecessor for fraudulent deflation of government expenditure in 2013-14 to display 'efficient management' of fiscal situation. It is time government started accounting on accrual basis instead of cash basis.

It is unlikely that Jaitley will deal strictly with owners of black money. The minister should know that a good person is not necessarily a good citizen and much less a good minister.

Emphasis on infrastructure is long-sighted and welcome. Scaling up FDI in insurance and defence sectors is appropriate. Willingness to pare down government ownership in public sector banks to 51% is a smart recognition of reality.

Manmohan Singh has lamented the absence of roadmaps. Undoing the mammoth mess that he bequeathed is not amenable to PERT charts.

Faulty assumption in the Budget

In the Budget presented on 28th February, Mr.P.Chidambaram claimed that he believed that there is a bit of Azim Premji in every one of us. It would have been more truthful to say that there is a bit of A.Raja and P.Chidambaram in each of us. We are more acquisitive than sacrificing, more possessive than philanthropic.

The Budget abounds in tokenism. An exclusive Bank for women! What an idea! This precedent will have to be religiously followed. Forthcoming Budgets will announce opening of exclusive Banks for minorities, linguistic and religious. It is easy to open the floodgates.

10% Surcharge on the income tax paid by the super-rich, all 42800 of them! There is no estimate of how much it will yield.

Investment Allowance of 15% will be allowed if machinery worth Rs.100 crore and above are bought by a company in the next two years. Why insist on minimum of Rs.100 crore? This is our kind of socialism favouring bigger companies as against the smaller ones.

The government continues to follow the cash system of accounting instead of accrual system. It is therefore easier to window-dress deficit ratios simply by postponing cash outflows into the next financial year.

One of the most meaningful couplets in Thirukkural says that even if income is minimal, it does not matter so long as the expenditure is not in excess. This is a couplet that Mr.Chidambaram would prefer not to quote.