India’s economy is going through one of the worst crises since liberalisation in 1990s. The GDP growth rate in nominal terms is the lowest in more than four decades, and investment rate and consumer demand are at abysmal levels. A lot of expectations were riding on the budget could have addressed the sagging consumer demand and the economic slowdown. Instead of going all out to tackle the economic crisis, finance minister Nirmala Sitharaman has made a half-hearted attempt to address the problem. The slowing revenues may have forced her hand, but the problem is that the FM didn’t give the impression of being someone who is capable of solving the crisis.
At the heart of the economic problems faced by India is a demand slump. The economy watchers expected the finance minister to leave more money in the hands of consumers. The finance minister did announce tax cuts, but they came at the expense of the tax exemptions enjoyed earlier by tax payers. Personal finance experts are of the opinion that individual tax payers would be better off if they stuck to the old tax regime that allowed them to avail some exemptions. The initial elation among industry circles and tax payers was short-lived. It seems there is hardly anything in these changes that could boost consumer demand.
The current employment situation in the country is the worst in more than forty years. The finance minister could have increased the allocation for the rural employment guarantee scheme (MGNREGA) and labour-intensive sectors. Instead, she cut the outlay for MGNREGA, and sectors such as agriculture and food that have huge employment generation potential.
Considering the extraordinary economic situation in the country, the finance ministry was expected to step up public spending. The finance minister has projected the fiscal deficit for the next financial year at 3.5%. But there is a lack of transparency in India’s deficit figures. Former chief economic adviser Arvind Subramanian says India’s consolidated fiscal deficit in 2018-19 was close to 9% and would be higher in the current financial year. A higher fiscal deficit could have triggered sustainability concerns.
Economic crises are also opportunities to effect path-breaking changes in the way an economy is managed. The way Manmohan Singh liberalised the Indian economy in 1991 is the stuff of legend. The Narendra Modi government and the finance minister have come up with some business-friendly reforms, but hardly any one of them can be described as a game-changer. Even the bold disinvestment policy seems to have been necessitated by the huge revenue shortfall, not from a faith in the country’s private corporates. By presenting a safe Budget, the finance minister lost a great opportunity to push through some pending transformational reforms.