The Union Budget of 2019-20 has proven to be an interesting case of a government trying to rectify its past errors and attempting to kickstart an economy in a slump. India being a nation composed, in a great part, of an emergent middle class and vast swathes of deprived people, has to find a way to boost the incomes of these sections thereby providing a sustainable kick to their spending patterns. This budget is an attempt to create a path which balances the needs of a nation desperate to create wealth, distribute it among the middle class and, not surprisingly, be presentable as a budget to curb excesses of the elites.
Primarily, the budget is an attempt to bring the Indian economy on track after it lost the steam post the double whammy of demonetisation and GST. The aim is to inject much-needed liquidity in the domestic market which had been pretty much starved of it as a result of the previously mentioned decisions. However this budget goes beyond just providing stimuli, it actually attempts to curtail any liquidity outflow. For instance, excise duty has been hiked for most goods which are deemed constraints on domestic spending. Simultaneously, the government is providing an impetus to the construction market by incentivising housing loans. Medium and small enterprises (MSMEs) are being given access to cheaper and quicker credit, as can be gauged from the decrease in interest rates for them. Enterprises with a turnover of less than Rs 400 crore are being given major tax exemptions (5 percent reduction), which is a higher slab than the previous one of Rs 250 crore. All this points to one singular fact: A government recognising the harmful effects of its previous actions and making efforts to undo the damage. This is a welcome fact since India does need domestic spending to grow as it’s not an export-oriented economy like China or Germany. Counter-intuitively, the ongoing trade war between the great powers might help the Indian economy to focus more on its domestic market and actually benefit from it.
These are just baby steps towards a more long-term goal, and in the process, we might be missing out on the low hanging fruits which we can readily avail. Take the focus given to the new MSMEs. These units will take some time to become robust employment generators. However, the big corporate giants and the industrial conglomerates which presently provide a huge chunk of employment in the country have been left high and dry. While the concern about newer smaller enterprises is genuine, the government should have taken cognisance of the needs of the larger firms.
While we speak of the macro details of the economy, we must also take a larger view of things. India is a nation endowed with great wealth and most of this wealth is accumulated in the hands of a small fraction of the population while the vast section (above 70 percent) remains deprived of the fruits of this massive wealth generation. Thus any celebration about the increase in per capita income is premature and misleading. This budget seems to lack the ambition and the scale to tackle these harsh realities. Also, the government seems to be living in denial about its lack of progress in the international arena. Let’s look at this fact from a historical perspective: Indian economy as a percentage of the world economy has shrunk from 5 percent in 1960 to 3.2 percent in 2018, from 8th biggest economy in 1960 to 6th numbered economy in 2018, doesn’t seem so fascinating. The buzz about the economy transformed to USD 2 trillion is just 3.2 percent of the global economy as it was 5 percent in 1960. So USD 2 trillion figures can’t add up to glorifying of an economic superpower as quoted by the finance minister. Its position among great nations has also risen by a mere 2 ranks. Such statistics don’t bode well for a country which is trying to project itself as the next economic behemoth. India needs fewer slogans like ‘5 trillion-dollar economy’ and more structural reforms to actually make it happen. More than USD 5 trillion economy, India needs a marginal increase in per capita income in terms of taking a sizeable portion of the population out of below the poverty line.