Budgets are nothing but balancing
Nirmala’s 4th budget presentation
Second pandemic budget by Seetaraman
(Shankar Raj, Bengaluru)
Every February 1, all events are kept on hold and the focus would be on the Finance Minister and the Union Budget. Various sections of the population pin their hope for a better living on the budget. In reality, annual budgets are nothing but balancing income and expenditure. This year, there is more hope riding on Finance Minister Nirmala Sitharaman’s budget – now that the wheels of economy have slowly started moving during the fag end, hopefully, of the deadly pandemic. During these tough days, the job of the Finance Minister is not going to be easy. In fact, it will be more complex as she presents her fourth budget Tuesday. For the first time in history, the Finance Minister will be presenting India’s second pandemic budget. The big question is will the budget have fireworks to meet the challenges of joblessness and rising distress in the informal economy beaten hard by the pandemic.
The nation expects higher allocations for healthcare, education, rural and urban employment schemes, housing programmes, credit guarantees for the worst-hit sectors including MSMEs among others. Even though tax collections went up surprisingly, the need for market borrowings remains elevated at over Rs 12 lakh crore in FY23. The FM had indicated this in her previous budget itself. As per the medium-term fiscal policy, fiscal deficit is targeted at 4.5% of GDP by FY26, implying an average 60 bps annual reduction. It means, the deficit will likely be 6.3% or thereabouts in FY23. But the RBI, which helped the government borrow at a 17-year low last year, is unlikely to do so in the coming days.
Just days ahead of Budget 2023, the central bank gave such an indication. Deputy Governor Dr Michael Patra reasoned that it’s time for fiscal policy to take over its vanguard role, as the RBI returns to its dutiful complementary position. Loosely translated, it means RBI will no longer anchor long-term bond rates at the sacrosanct 6% and that borrowing rates will rise. No big leap likely On the practical side, there cannot be any fireworks or a big leap forward in government expenditure either given Sitharaman’s reluctance to spend even during the height of the pandemic. Total expenditure is likely to be pegged at around Rs 38 lakh crore. This is because the FM believes that supply-side economics need not essentially include tax cuts or cash transfers, but regulatory measures and efficient allocation of capital and labour. Some will involve short-term costs, but ensure long-term gains, eventually leading to higher output and lower prices. But these measures primarily need two things — time and political resolve.
This is why many are skeptical that the Budget may be big and bold. It will not have fireworks and will just ensure continuity with many of the initiatives announced in previous budgets. In last year’s budget, several key announcements were made, but remained unfulfilled. These areas will need sharper focusing and ensuring their execution. These include privatisation, national infrastructure pipeline, asset monetisation, bad bank, including G-secs in government bond index, and importantly direct tax reforms. Income taxes Thanks to Sitharaman’s FY20 Budget, taxpayers now have two choices.
However, this has created administrative complexity, and the upcoming Budget is expected to smoothen out the wrinkles. This is very much needed to increase compliance and broaden the tax base. Only when this happens, the next step of rationalizing tax slabs becomes realistic and doable, perhaps next year or just in time for 2024 general elections. The FM must also ease compliance for taxpayers, who have been facing inexplicable technical glitches, besides clarity on equalisation levy, and on cryptocurrencies. On the corporate taxes front, the 2019 tax cuts helped firms gain higher profitability. It’s the turn of companies to return the favour by embarking on a capex spree. Banks too are waiting for the investment cycle to take off for credit growth to crack double digits. This will also partly address the nagging issue of job creation. Even though unemployment rate is back to pre-pandemic levels of 7%, this is due to low labour participation and for broad-based improvement in jobs, the FM will likely fast forward infrastructure projects, besides increasing allocation for MNREGA. More funds for healthcare In tomorrow’s budget, the focus areas would be on healthcare due to the scars left behind by the pandemic. The government should show boldness in allocating higher funds, particularly for programmes like Ayushman Bharat that are severely under-funded. Besides, the budget should throw renewed light on doubling agricultural income, following the embarrassing rollback of farm laws. As for privatisation, the government has done well by striking a deal with Tata group on the sale of Air India. The next step should be on privatizing banks and insurance companies. The recent policy on public enterprises in strategic sectors marks the first step to pursue large scale divestments. (Author is a an editor of reputed dailies and senior journalist)