SN Misra
In 1991, Dr Manmohan Singh quoted Victor Hugo during his budget speech: “No force on earth can stop an idea whose time has come”. It was a budget that set course for free market economy and parties in power that followed broadly the same liberal path since.
The Economic Survey 2016-17 strongly advocated another major idea: Universal Basic Income Scheme. It would have generated minimum living standard for all Indians; particularly to the roughly 280 million people living below the poverty line (Suresh Tendulkar 2011-12). But Finance Minister Arun Jaitley has remained mum about the idea, while offering dribs and drabs to certain sections of the society.
This year’s budget was presented against the backdrop of a momentous legislation such as the GST and the tectonic impact of an ineptly executed demonetisation. The Economic Survey was candid enough to underscore that the consumption of the poor and the middle class has been seriously dented and India’s GDP growth is likely to be slowed by 0.5 percent.
The highpoints of the budget are its significant increase in rural allocation by 24 per cent, cutting tax rate of companies having turnover upto Rs50 crore by 5 per cent, containing market borrowing to 3.48 lakh crore as against 4.25 lakh crore last year, holding fiscal deficit at 3.2 per cent and scrapping Foreign Investment Promotion Bond (FIPB). These discernible initiatives should help the rural sector, ensure fiscal stability and encourage inflow of FDI.
However, the disappointments are too many. The budget has not provided practically any budgetary incentive to boost the manufacturing sector, which has the best potential to generate additional employment and make India a global manufacturing hub.
There is no provision such as additional benefit of depreciation for machinery purchased or higher interest relief on housing loans. Neither is there any significant allocation to encourage innovation, research and development.
A sop of 5 per cent income tax rate relief to the SMEs is not going to boost their productivity and competitiveness, unless adequate investment in research and development and quality skilling is promoted. The very fact that we spend 0.7 per cent of our GDP on research and development, as against an average of around 5 per cent by developed and emerging market economies is a testimony to our lopsided vision of promoting manufacturing without ramping up the skillsets.
The Economic Survey has invoked Gandhi who wanted “to wipe tears from every Indian’s eyes”, to recommend a Universal Basic Income scheme, as the new template of social justice. This is in line with the idea of social justice propounded by John Rawls, to supplant mega schemes such as SSA, MGNREGS and MDM.
Professor Subramanian has been careful to underscore that such scheme has the potential of a moral hazard where people will opt out of the labour market, aggravating gender disparity as the money going to be operated by a male member and has the potential of diversion towards alcoholism and indebtedness.
However, this is an idea whose time has come for serious debate and deliberation. Alan Greenspan writes in his book “The Age of Turbulence”, how he tried to persuade Richard Nixon, a conservative Republican President, to cut down on social security budget initiated by Democratic President Franklin D. Roosevelt in 1936 after the economic depression in the USA.
Nixon merely smiled and replied he can ill afford to cut down on programmes meant for poor even if they are economically pragmatic because of their political backlash. Jaitley is aware that populism is more potent than market economics.
The author teaches economics and is Dean, KSOM.
