This piece is part of Scroll.in’s Hard Times series, which seeks to simplify the Great Indian Slowdown for readers. You can find the rest of the pieces from the series here.
Finance Minister Nirmala Sitharaman spoke for two hours and 40 minutes on Saturday to present this year’s Budget to the Lok Sabha. Her speech was so long that she was unable to finish it: she tabled the last two pages because she felt unwell by the end.
Yet in the tens of thousands of words that make up her 2020 Budget speech, you would be hard pressed to find three or four that acknowledge what a difficult position India’s economy is in.
Over the last year, Sitharaman’s government has indeed refused to admit how dire the economic situation is – with the lowest Gross Domestic Product growth in the decade, multi-decade lows for employment and consumption, and a giant hole in tax collections.
Yet most of this has been dismissed as mere political commentary that is simply aimed at maligning Prime Minister Narendra Modi.
One might expect Finance Minister Sitharaman, who spent the last year announcing measures aimed at turning the economy around, to offer a more realistic picture.
And indeed, after an opening section that was full of grand claims about paradigm shifts and structural reforms, Sitharaman said, “I am mindful of presenting this budget in the backdrop of two cross-cutting developments.”
This may have led some to believe that she would bring up the lowest Gross Domestic Product growth India was facing in a decade and the huge gap in government finances because of low tax collections.
Instead, the two developments Sitharaman brought up were “proliferation of technologies” and India having the world’s highest number of people in the productive ages, 15-65.
“This combination is special to contemporary India,” she said. “The efforts we have made in the last five years and the energy, enthusiasm and the innovation of our youth are the ignition required to push forward.”
A Budget speech may not be the place to tell the country that India has recorded its worst unemployment numbers in more than four decades, but not acknowledging the challenge at all seems almost like mockery.
The massive gap in tax collections and the many woes of the Goods and Services Tax is another example. The Budget documents themselves anticipate a tax shortfall of about Rs 1.5 lakh crore, while analysts think the actual gap will be larger at more than Rs 2 lakh crore.
The 15th Finance Commission, which tabled an interim report that same day, put forward a long paragraph on all the problems faced by the GST, which have contributed to this drop in tax collections.
Yet this seems to have been the extent of Sitharaman’s acknowledgment of these difficulties in her speech: “Finally, continuing the tax reform is an ongoing challenge and we propose to pursue them with full vigour.”
One of the most closely observed portions of the Budget speech is the section on the fiscal deficit – the gap between what the government spends and how much it expects to earn, which Sitharaman didn’t even include in the previous year’s speech.
This time around, she not only mentioned the deficit, but Sitharaman also announced that the government was triggering an escape clause that allows it to go beyond the legal mandate to attempt a balancing of the budget, called the Fiscal Responsibility and Budget Management Act.
In July 2019, the government had anticipated a fiscal deficit of 3.3% of the GDP for Financial Year 2019-’20, and 3% for the subsequent year. In her speech, Sitharaman said that she is now triggering the escape clause, since she expects the numbers to be a full 0.5 percentage points higher for both years, bringing it to 3.8% and 3.5%.
Her only explanation? “On account of structural reforms in the economy with unanticipated fiscal implications.”
Rathin Roy, a former member of the Prime Minister’s Economic Advisory Council who flagged India’s silent fiscal crisis last year, questioned this approach.
“There is not a word in the Budget that analytically explains why the clause has been invoked,” he wrote. “The government has presented no plan which evinces a road map to returning to fiscal prudence as recommended by the FRBM [Fiscal Responsibility and Budget Management] committee.”
He added: “And worst of all, as I have shown, the increased fiscal space has only been used to plug a hole in tax revenues. In effect, this invocation is spurious and cannot hide the fact that the medium-term fiscal position is weak and, therefore, it is futile to pretend that a controlled return to the FRBM path is a credible objective.”
Many are still doubtful that even these numbers will be achieved.
For example, to get to the 3.5% number in Financial Year 2020-’21, the government has budgeted a huge disinvestment target of Rs 2.1 lakh crore. This is despite the current year target of Rs 1.05 lakh crore being reduced to Rs 65,000 crore, with only Rs 18,000 crore having been achieved so far.
Similarly, an announcement of an option to pick lower income tax slabs came with a caveat that revealed the new rates would only be beneficial for a very small set of people.
Honesty is essential
One of the key demands for Sitharaman’s budget was that, this year, it should be honest about the situation the country is facing and what its fiscal numbers actually are.
On this there is some improvement. The budget documents include off-budget borrowings, that the government auditor has in the past flagged as a way for the ministry to
hide” the true fiscal deficit. These are pegged at 0.8% of the GDP, meaning the actual fiscal deficit for this year is 4.6%.
Yet while Sitharaman may have put this in the documents, her speech itself and the Budget overall seem to remain blind to the fact that India is facing a debilitating economic crisis. This is a reflection of her government’s priorities, with focus on the political and ideological project of provoking cultural wars rather than addressing the economy.
As Carnegie’s Milan Vaishnav writes in the Washington Post, “An Indian bureaucrat I recently spoke with asked me to draw up a list of the government’s top 10 priorities. What I would find, he quipped, is that economic reform comes in at No. 11.”
And it shows. Despite the worst GDP growth in 11 years and deeply worrisome tax collection indicators, the Bharatiya Janata Party seems focused on expanding religious and social faultlines – possibly to make up for its failures on the economic front.
Budget 2020 reiterates this.
If you were hoping to get an indication that the government will spend the year putting all its efforts into fixing the economy, you will walk away disappointed. Sitharaman may not end up rolling back as many announcements this year as she did in 2019, and the budget math may slightly more realistic.
But the speech and the documents reaffirm the sense that the BJP appears to be operating in a world of their own, where India’s population is gainfully employed and the economy is booming. More than the fiscal deficit or the tax collection shortfall, it is the gap between that image and what the real world looks like that should worry Indian citizens.