Budget 2017-‘18 was distinctive on some fronts: For the first time since 1924, the railway budget was subsumed under the general budget; the traditional plan and non-plan classification was dropped; and budget presentation itself was advanced by one month.
But it was a budget presented 84 days after demonetisation, which has derailed growth, destroyed jobs, pulverised economic activity, and pushed the economy into a recessionary phase.
The budget was expected to be a salve for the pains of demonetisation and to enhance spending, stimulate consumption, generate employment, improve purchasing power, and to give a big push to domestic demand. But it failed miserably to do any of it. The finance minister has instead presented a contractionary budget.
The hike in total expenditure is far less than the projected nominal GDP growth. The budget envisages nominal GDP growth of 11.75 per cent (real GDP of 6.75 per cent plus inflation of 5 per cent). Gross expenditure under the revised estimate for 2016-17 is Rs20.14 lakh crore. In the current budget, it is estimated to be about Rs21.46 lakh crore. Therefore, the actual increase is just 6.55 per cent as against projected nominal GDP growth of 11.75 per cent.
The total size of the budget has also come down from 13.4 per cent of GDP last year (revised estimate) to 12.7 per cent of GDP this year, as the GDP is estimated to be about Rs1,68,47,455 crore in 2017-18. In many countries, the size of the budget, as a percentage of GDP, is double that of India.
If size of budget is not enhanced in tandem with rise of nominal GDP, allocation for different sectors and ministries will not be up to expectation, and growth will be far from being inclusive.
The government has failed to mobilise resources. This year, it is once again relying excessively on increasing revenue receipts through higher excise duty on petroleum products. However, total revenue receipts have fallen from 9.4 per cent of the GDP in 2016-17 (revised estimate) to 9 per cent of the GDP in budget estimate 2017-‘18.
Resources generated from other receipts, that is, disinvestment, were Rs56,500 crore in 2015-16. It has declined to Rs45,500 crore in 2016-‘17. But, in this budget, it is estimated to increase to record Rs72,500 crore, which is unrealistic.
Further, excessive reliance on disinvestment to raise resources is unwarranted as it would transfer public assets to private stakeholders and the government would lose dividend with reduction in shares. It is not a permanent solution to the resource crunch or the inability of the government to tax the rich. While Jaitley expressed concern about low tax-GDP ratio and India being a less tax compliant country, he did not take any step to address this perennial problem or to recover tax arrears amounting to more than Rs8 lakh crore.
The fiscal deficit target has been achieved by reducing expenditure in place of providing fiscal stimulus. This is not fiscal prudence, rather fiscal fundamentalism. Because of which, the budget does not have the essential resources to back the finance minister’s intentions.
Hence, despite claims of a massive push in infrastructure, there is a reduction in real terms as the capital expenditure of the government has fallen from 1.86 per cent of GDP (2016-17, RE) to 1.84 per cent of GDP (2017-18, BE) and if capital expenditure of railways is ignored, it comes down further to 1.51 per cent of GDP.
The finance minister claimed he was allocating Rs48,000 crore for MGNREGS, which is actually an increase by a mere Rs501 crore compared with the revised estimate of Rs47,499 crore for 2016-17. The revised estimate for Pradhan Mantri Gram Sadak Yojana is Rs19,000 crore in 2016-17. The same amount is allocated for 2017-18 too. Similarly, other major social sector projects such as Sarva Shiksha Abhiyan, Midday Meal Scheme, National Drinking Water Scheme, and National Old Age Pension Scheme have got sparse increases.
The budget announced doubling of income of farmers just as in the previous year. But the agriculture ministry received an additional allocation of only Rs3,000 crore. The claim that a credit of Rs10 lakh crore was being extended to farmers sounds discordant, especially when credit offtake has decreased.
The allocation for Pradhan Mantri Fasal Bima Yojana for rural development has dipped from Rs13,420 crore to Rs9,000 crore and the budget does not address banking sector plagued by a rise in NPAs up to 12 per cent of advances owing to defaults by corporates. While banks need a lot of money for recapitalisation, Jaitley has allocated onlyRs10,000 crore, which is far lower than previous years.
The budget was described as a paradigm shift to clean politics. The finance minister also made several announcements regarding political funding. He restricted cash donation to political parties to Rs2,000 against Rs20,000 previously. This would only lead to more anonymous donations being made for the same amount.
Actually cash transactions should be abolished and all political funding should be done through cheques or electronic means. In the absence of prohibition on corporate funding of political parties and stringent implementation of overall limit on election expenditure of candidates contesting election, the so-called reform of electoral funding is nothing but humbug. However, the ban on cash transaction above Rs3 lakh is a
welcome step.
However, instead of enhancing purchasing power of people, the finance minister has dampened it by augmenting indirect taxes, and it will impair demand. The budget inflicts further burden on the people and exacerbates unemployment and recessionary
tendencies.
The author is an Orissa-based financial columnist.