Budget & Development: Debt stalks growth

The Union Budget 2021-22 is being viewed as a document to consolidate, spend and revive on the one hand and on the other an extravaganza without expanding the kitty that gives little and takes more from every citizen. It doesn’t suit the needs of these times of crisis, which follow two years of economic slowdown and a year of severe recession.

It is viewed as debt-funded huge expansion that may be good for the stock market but not for the overall development of the people. Borrowings constitute 36 paise of the rupee earned by the government and are bound to shoot inflation. Expenses should have been cut on many construction and euphoric projects like new ornamental constructions and super-speed trains. A decision that merits praise is the increase in healthcare allocations.

But it is also being seen as moving from off-balance-sheet funding to the headline-deficit funding of 9.5 per cent and shows that new spending increases by Rs 1.9 lakh crore over the Rs 1.2 lakh crore Food Corporation of India food subsidies. Incremental spending will be about Rs 2.9 lakh crore.

There is a catch. The budgeted Central Government’s total expenditure of 34.8 lakh crores in 2021-22 is identical in nominal terms to that in 2020-21 – which amounts to slashing expenditure in real terms. Debt servicing takes a larger cake that has risen in 2020-21 to over Rs 6.9 lakh crore is estimated to cross Rs 8 lakh crore. In short, the government would be left with Rs 26 lakh crore for its expenses.

The borrowings in 2020-21 were at Rs 18.48 lakh crore and are slated to be Rs 15.06 lakh crore in 2021-22, provided disinvestments of Rs 1.75 lakh crore is realised. Despite such huge borrowings, the allocations for projects and many other expenses were being cut mid-year since December 2019.

The tax system has gone through too many changes and confusing in terms of new no-concession income-tax and conventional I-T system that allows some deductions. The tax on EPF investment is beyond comprehension. Even the benefit of no-filing of return for those above 75 is superfluous because if one has two bank accounts or has any income other than interest accrual or pension, he may forfeit the benefit.

The budget should have been kinder to the lowest 30 per cent people in the unorganised, small and medium industry, and labourers who trekked hundreds of kilometers to reach their homes and save their lives. In fact, every earner has been shorn off the benefits they were having and many still do not have jobs. Taxing the provident fund is a signal that many more savings instruments may be targeted gradually. It does not augur well as large chunk of borrowings come from small savings, as per Finance Minister Sitharaman’s budget speech.

Despite clamour from depositors not to tax their meager interest accruals, the poor savers, retirees and pensioners are losing a large chunk to TDS on bank deposits. It is not a prudent policy to tax the aged or push them to penury. The new car scrapping policy is to burden them more.

It also sends mixed signals to the farmers. The budget allocation for the department of Agriculture, Cooperation and Farmers Welfare is slashed 8.5 per cent in 2021-22. The flagship PM-KISAN scheme, meant to provide income support to farmers, sees a 13 per cent drop in its budget, which is Rs 10,000 crore lower than last year’s initial allocation. However, the budget says state-run Agricultural Produce Marketing Committees (APMCs) would now have access to the Rs 1 lakh crore Agriculture Infrastructure Fund (AIF). The AIF cess has been raised to 4 per cent and would impact almost every walk of life as it is dumped on petrol and diesel prices. The nation should have looked for providing cheaper fuel to the people at a time when international prices are at its lowest.

Various cesses on petroleum products raise over Rs 3 lakh crore a year, but erode the economy through cost rise on transportation and farm inputs, leading to severe inflation and overall hardship. A government committed to development should realise that a nation progresses on low expenses on fuel.

The budget should have given some novel thought to supporting agriculture. The government has to think out-of-the-box to take the opportunity to have a fresh look at the farm sector that encompasses the life of over 80,000 crore people and they cannot live on dole for long.

The government has lowered disinvestment target to Rs 1.75 lakh crore from Rs 2.1 lakh crore in 2020-21 as pandemic affected government’s disinvestment plans. It has put on the platter the strategic sale of IDBI Bank, BPCL, Shipping Corp, Container Corporation, Neelachal Ispat Nigam Ltd, Pawan Hans, Air India, GAIL, oil pipelines, seven ports and some others, including two public sector banks through setting up Asset Management and Asset Reconstruction Company.

The move to go through the sale of two banks and diluting stake in LIC to 74 per cent is beyond comprehension. The LIC is in good shape and is the only honest insurance company. The decision needs to be rolled back. The bank NPAs are not their own creation. It happened because of interference in the work of banks since 2009. The present step can be the beginning of selling out stakes in other banks too. So is the nation changing tack of nationalising the banks in 1969 or going into a cycle of another nationalisation in a few years? It calls for reviewing such Manmohanomics decisions at a time when the Reserve Bank of India itself is concerned about its own health.

The government’s ideological group in Swadeshi Jagaran Manch (SJM) is opposed to such sales. The SJM had put a brake on NDA-I too. For it and trader body efforts the retail sector has got a small boost as the online companies now would be taxed 2 per cent for their sales.

The stake sale in PSUs built over decades calls for a scrutiny. Some of the finest PSUs like HMT, Indian Airlines and Air India were victims of machinations of their private sector rivals. The concept that government should not own ventures is misplaced and incorrect. The US and many European Union countries are known to owe their progress to the PSUs. India has been taking too many flip-flop decisions over the years. Overall, a closer look at the Budget reveals that it is too thinly spread and needs a thorough relook to achieve the goals of fast development that the Finance Minister stresses. Sooner it’s done better for the government.


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Shivaji Sarkar | INFA

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