In 1991, Dr Manmohan Singh rose in the Lok Sabha to quote Victor Hugo: ‘No body can stop a moment ,whose time has come’; to unleash the animal spirits of the Indian entrepreneur. And set the firm imprints of a free market economy, in sync with global tax rates, excise and customs duty. The parties in power of different political persuasion have followed broadly the same liberal path since then,with cosmetic tweaking.
This year’s budget was expected to be another watershed moment in India’s tryst with fiscal calculus; with a momentous legislation like the GST and a tectonic and high-handed move to demonetize the high value currency notes. The Economic Survey, released by the Finance Ministry, a day before, admitted that consumption of the poor and the middle class has been seriously dented and India’s GDP growth story would be sullied by 0.5 percent. It was therefore widely expected that the personal tax rates at different income slabs would be hived significantly to spur consumption and through the Keynesian multiplier boost private sector investment.Jaitley’s tokenism in reducing only the tax rates at the lowest level could not have been more disappointing. It’s like an Orwellian howler which suggests that ‘some are more equal than others’ , as in a communist state.
The other major disappointment has been providing practically no budgetary incentive to boost manufacturing,which has the best potential to generate additional employment and make India a global manufacturing hub. There is no provision to give additional benefit of depreciation for machinery purchased or any significant allocation to encourage innovation, research and development. A sop of 5percent income tax rate relief to the SMEs is not going to boost their productivity and competitiveness without adequate investment in R,&D and innovation. The very fact that we spend less than 1percent of our GDP on R&D ,as against an average of around 5percent by emerging market economies is a testimony to our lopsided vision of Ease of Doing Business without significant skill sets. Most of the manufacturing hubs of Japan,Germany and South Korea have their seeds in the handsome investment they made in quality education and R&D.
Its also a pity that the budget pays only a lip service to the education sector by opening two more IIMs. It is completely oblivious of the ASER report ,how the education outcomes of our grand universal education program,SSA, is dismal, increasing migration to private schools to 30 percent. The UGC, the czar of higher education , continues to be bureaucratic with a thrust to control rather than to promoting quality and fostering research. The excellent recommendation of the Knowledge Commission, and Narayan Murthi committee to have an independent regulator for higher education, have viable partnership with world class universities, relaxing the FDI norms to foster this process have completely escaped Jaitley’s compass.
He started off by reeling of the statistics of how a lot of deposits were made in bulk amounts,while only 1.71 lakh are tax assesses have taxable income of more than 50 lakhs. Having failed to junk any significant amount of demonetised notes,it’s a veiled warning by Jaitley that a raid Raj is on the anvil. Stevenson had observed that statistics is like bikinis. What it reveals is interesting,but what it conceals is vital. Just as VP Singh unleashed the IT sleuths in the 1980s, Jaitley has discovered a potent tool to settle scores.
The budget has not been without its share of humour. When Jaitley tried to unveil his plans to clean up political funding ,there was a hushed silence. However the moment he mentioned about election bond as a major panacea for electoral funding,there was a combined gasp of relief. Jaitley ,the politician ,has nailed transparency and pragmatism at the altar of populism.
The other major disappointment has been not addressing the twin balance sheet challenge,both of the Public sector banks’s burgeoning NPAs and big corporates continued concerns with the debt overhang. But that did not deter him from assuring the house that he will soon bring a law how to confiscate property of corporate absconders , who still have the Parliamentary privilege to skip the eyes of law.
Prof Arvind Subramaniam in the Economic Survey had invoked Gandhi who wanted to wipe tears from every Indian’s eyes ,to recommend a Universal Basic Income scheme ,as a new template of social justice. This is in line with the idea of social justice advocated by John Rawls, which will supplant a large number of schemes like SSA. MGNREGS and MDM. Jaitley is an astute politician; he won’t bite such bitter Gandhi pill.
ProfSNMisra teaches Economics.
The view are personal.