Budget 2021: Some concerns about policy direction

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By Srijit Mishra

Budget 2021: Finance Minister Nirmala Sitharaman and her team need to be complemented for the first ever digital presentation of the Union Budget. I had to give the budget speech a miss as I was delivering a lecture on Rawls’s justice. My training in reading budget numbers goes back to 1992 when Professor Iqbal Singh Gulati lectured us on revenue, fiscal and primary deficits, using graphics from newspaper cuttings. He also talked about the implications of fiscal indiscipline and the need to keep a tab on the balance of payment scenario so that India does not have to pledge its gold reserves again.

The budget in question was Dr Manmohan Singh’s historic second budget, just nine months into Narasimha Rao’s prime ministership. India’s growth story from the lower-level trap had just begun under their stewardship.

Budget 2021, the third by Nirmala Sitharaman, came in the backdrop of an unprecedented global economic crisis tiggered by the Covid-19 pandemic. The pandemic affected the supply and demand of goods and services. The most important lessons from the pandemic crisis are (a) strengthen local level economies (from panchayat, to blocks, to districts, to states and upwards), (b) focus on life and livelihood and through them the economy (not the other way round), and (c) give attention to sustainable agriculture. One fails to visualise these lessons in Budget 2021.

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Healthcare focus of Budget 2021

The focus of Budget 2021 is on health and well-being, somewhat inevitable during a pandemic. Public expenditure on health in India has been among the lowest in major economies. The budget speech points out India’s resilience in addressing the Covid-19 pandemic. It is to India’s credit that there has been no second surge despite numerous public gatherings on account of elections in some states and the two-month long protests against the recently enacted farm laws.

Now, if the coronavirus pandemic is on the wane in India then one fails to understand the need to earmark ₹35,000 crore for vaccination drive. Either the finance minister does not believe in the official numbers showing a decline in infections or there are other considerations in spending on vaccines.

Spirit of Atmanirbhar Bharat missing in Budget 2021

The intention to create and nurture global champions and create more jobs are to be appreciated. However, it should be kept in mind that a growth-centric focus on physical/financial capital and infrastructure as articulated in Budget 2021 seems to go hand-in-hand with the emergence of a few large players and an increasing reliance on artificial intelligence.

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Along with the demographic dividend, Atmanirbhar Bharat will require a focus on creating a large number of smaller entities. This will require a different kind of articulation and hand holding, which will also bring about market efficiency. Of course, there are other overriding concerns such as the need to strengthen local economies with a focus on life and livelihood. I am afraid that the current focus on physical/financial capital and infrastructure does not seem to be in sync with the idea of Atmanirbhar Bharat.

My contention against the focus on physical/financial capital and infrastructure is not in line with the market sentiment. This, in fact, substantiates my contention that an annual accounting exercise of the government’s fiscal situation can have so much attention only if the so-called market sentiment is on account of rent-seeking. I must point out that the term market has multiple connotations and its usage to denote a sentiment that has more to do with the market power and not with market efficiency that comes from large number of buyers and sellers where no one influences the price. It also has nothing to do with market as a place that allows individuals to freely transact.

Define market sentiment

It is politically prudent to make policies that are inclusive for an aspirational India. Even if one concedes that a cut in budget for rural sector and agriculture is in order on account of the pandemic, one fails to see the policy links with the larger crisis in Indian agriculture, which impacts the livelihood of nearly half of India’s working population and their dependents.

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One can notice the inappropriateness of the input-intensive production logic along with a one-size fits all solution that adds to costs and risks. For instance, Budget 2021 indicates that the expenditure towards minimum support prices (MSP) for paddy, wheat, pulses, cotton, jute and oilseeds in the next financial year is to the tune of Rs 2.84 lakh crore, which is 22.8% of the credit deployed to agriculture and allied activities as of December 18, 2020. It is true that agricultural credit is for other purposes, but the moot point is that they are largely not serviced (rather, not serviceable) through the so-called minimum support prices, and hence, not sustainable.

On MSPs, one may also point out that the prices are fixed for 23 agricultural commodities and not technically implemented for all these commodities. Even for these 23 commodities, the costs and prices seem to be fixed. This is an anomaly as costs can vary. For instance, the budget outlay for roads to Assam, Tamil Nadu, West Bengal and Kerala suggests that per kilometre cost will be to the tune of ₹26 crore, ₹29 crore, ₹37 crore, and ₹59 crore, respectively.

Similarly, the per kilometre cost of metro rail in Kochi, Bengaluru and Chennai are ₹170 crore, ₹254 crore, and ₹532 crore, respectively. If cost of roads and metro railways can vary across the country then why it is difficult for the government to accept that cost of cultivation and the prices of produce can also vary.

No painless taxation in Budget 2021

Coming to taxes, it is a matter of concern that indirect taxes contributed more to the receipts of the government than direct taxes in 2020-21. Further, the tax slabs for income in India has been higher for individuals than for corporates. These indicate that the tax structures are regressive.

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In a pandemic situation where common people have contributed more through indirect taxes, the tilt of the Budget 2021 towards corporates seems like the continuation of the growth-centric approach that considers people as means. It gives the impression that the pandemic is an aberration and should not be the basis to guide policy decisions.

I must reiterate that the budget is an annual accounting exercise and one should not read much into it in terms of policy directions. But, this executive exercise that began as a requirement for the government to take forward its fiscal transactions from one year to the next has gone beyond being a money bill. It is good if the government wants to reiterate its policy intent through the budget, but it should be limited to that.

[Srijit Mishra is Professor at the Indira Gandhi Institute of Development Research (IGIDR), Mumbai. Views are personal.]