Memorable budgets are not a feature of Prime Minister Narendra Modi’s tenure. This isn’t a criticism. The Modi government has generally preferred to make its policy intentions clear beforehand, usually through the prime minister’s own speeches, and used the Budget simply to announce details or manage perceptions. Friday’s Budget, the first one of Modi’s second tenure, was no different.

Finance Minister Nirmala Sitharaman’s first Budget speech figured no big announcement, nothing that would either pleasantly surprise commentators or give them palpitations. The Budget stuck to the general script of Modi’s economic policies: stable macroeconomic fundamentals (even if that requires some creative accounting), a sharp focus on the welfare state, and the internet to bring in reforms.

The problem here is that a business-as-usual Budget seems extremely out of place.

One reason for that is simply that this is Modi’s first Budget after winning a massive victory in the 2019 elections, and also Sitharaman’s first speech since she was put in charge of the finance ministry. This meant that expectations were somewhat high for a statement of intent about Modi 2.0.

Economic headwinds

But maybe the more important reason is that the Indian economy appears to be in a precarious condition. The Finance Ministry earlier this year acknowledged the slowdown, particularly the dying embers of consumption that were earlier powering India’s growth story. As we learned midway through the 2019 elections, sales of consumer vehicles were down to a seven-year low, unemployment had spiked, we saw the worst Gross Domestic Product numbers in half a decade and some consumer goods company officials were speaking of a recession.

Against this backdrop, a middle-of-the-road Budget seems oddly dissonant.

Indeed, Sitharaman’s speech seemed to jump out because of a lack of information. Rarely did she give details of allocations and other specifics. One can only imagine, for example, how the Bharatiya Janata Party might have responded to a Congress Budget speech that made no mention of the Defence forces at all.

Even the fiscal deficit figure seemed to turn up in the speech almost as an after-thought. Why so little attention to detail or big ideas?

Some of it may have to do with Modi already having played his hand. Although the Budget in February was technically an “interim” one, as is the norm for lame-duck governments ahead of an election, the Modi government treated it like a regular one, even announcing a big new scheme at the time – the Pradhan Mantri Kisan Samman Nidhi, or PM-Kisan, which gives Rs 6,000 as annual income support to farmers with less than two hectares of land.

The Pradhan Mantri Kisan Samman Nidhi for farmers was announced in February. Credit: Himanshu Sharma/Reuters

How many trillions?

That interim Budget, and the shortfall in revenue targets, meant that the government had little fiscal space to announce anything massive. Instead, Modi Sarkar has latched onto two targets that sound impressive but don’t of themselves mean much to ordinary people: turning India into a $3 trillion economy by the end of this fiscal year, from about $2.7 trillion now, and a $5 trillion economy by 2024.

While both are important goals, it is hard to gauge how they might matter to citizens. What use is a larger economy if all the growth is captured by a super-elite, leaving out most people? Would leapfrogging a country like the United Kingdom in terms of economic size have any merit if farmers are still facing an agricultural crisis?

Regardless, the government has attached itself to two concrete number targets, a stark contrast to its nebulous goals for demonetisation or even the potentially ambiguous promise to double farmer incomes by 2022.

As the Economic Survey makes it clear though, this will not be easy to achieve. The Survey, tabled on Thursday expects India to grow at 7% this year, and then speed up to an average of 8% for the next five years if it is to get to the $5 trillion number.

So what does the Budget say exactly?

  • Tax the rich: For starters, the government plans to mop up more money from the rich. It has increased a tax surcharge on the top bracket, which means that those who earn more than Rs 5 crore per year will be paying something close to 42%, compared to 30% marginal tax.
  • But reduce corporate burden: Earlier, the corporate tax rate was 25% on companies with an annual turnover of Rs 250 crore, going up to 30% for those beyond. The threshold has been pushed up to Rs 400 crore in turnover, meaning only 0.07% of companies now come under the 30% tax rate. It also eased provisions of the “angel” tax, a policy of scrutinising start-ups to see if they were over-valuing themselves, which many businesspersons argued was threatening the growth of young companies.
  • Spike petrol prices: The only proper groan from Parliament during Sitharaman’s speech was when she announced an increase of Rs 2 through duties and cesses on petrol and diesel.
  • Welcome foreign investment: Sitharaman announced a slew of moves to make Foreign Direct Investment into the country easier, particularly in sectors like media and aviation. It is pertinent to note that some of these sectors have seen promises in the past, but it has never amounted to very much.
  • Introduce dollar borrowings: In maybe the biggest shift announced in the Budget, Sitharaman said that the government will start to borrow money from the overseas market in dollars. India has tended to only use rupee-linked debt, mostly because of concerns about its other macroeconomic fundamentals (dollar bonds would be tremendously expensive if the Indian rupee suddenly nose-dived in value). But with stable conditions now, the government is hoping to take advantage of the situation.
  • Add capital for banks: With the Non-Performing Asset crisis not exactly resolved, the government said it would provide state banks with Rs 70,000 crore in capital, using an accounting trick to make sure those numbers do not hurt the fiscal deficit.
  • Push rural infrastructure: Sitharaman proposed to spend more than Rs 80,000 crore on augmenting up to 1.25 lakh kilometres of rural roads, with the aim of setting up a national highway grid.
  • Ramp up disinvestment targets: The government has set its target for disinvestment – selling the government’s share in various public sector units – at Rs 1,05,000 crore for the financial year, 16% higher than the amount mentioned in the interim budget. Importantly, Sitharaman said the government would consider going below 51% stake in some of these institutions.
  • New labour codes: This has been in the works for a little while, though there is still little clarity on what it actually entails, but Sitharaman said the government plans to streamline India’s labour laws into a set of four codes that would, along with other things, make it easier to do business in India.
  • Use Aadhaar instead of PAN: Though this is unlikely to have a huge effect on the economy per se, the government curiously said that people who don’t have PAN would now be permitted to use Aadhaar in its place (though the converse would not be true). This comes after years of the government attempting to get people to link their PAN cards to Aadhaar.

Of course, there are many more provisions and details within the speech, and even more buried within the documents. It will take some time to figure out how exactly the government has done its calculations and whether they actually add up, a point worth noting since the Comptroller and Auditor General has in the past hauled up the BJP leadership for creative accounting.

But maybe the bigger question remains one of dissonance. The government has by and large ignored warnings from its own former adviser, Arvind Subramanian, that the economy is worse off than it looks. Analysts from across the board have brought up the fears of what could be lying in store, and global conditions are bleak, as the Economic Survey mentions.

Has this Budget done enough to address fears about where the Indian economy is heading?