The poor get short shrift in short-sighted Budget
EVERY year, the government presents the Economic Survey and the Budget one after the other. Through the survey, it seeks to describe how the economy is faring. And through the Budget, it tries to spell out what action plan it has in mind. These are viewed against two considerations: given the current situation, what should be done? And are things likely to go in the right direction?
The government seems rather pleased by what it has been able to achieve so far in its 10 years in power. In the 2023-24 financial year, the economy grew by 8.2 per cent, making India the fastest mover among all large economies. In 2023, the global economy grew by 3.2 per cent. The country is also confident about being able to contain the headline inflation of 4.5 per cent in 2024-25. But this story is not entirely rosy. Retail inflation was higher at 5.4 per cent during 2023-24. And more disturbingly, food inflation was as high as 7.5 per cent.
Overall, having done rather well in this regard, the survey has spelt out the following growth strategy so that the goal of Viksit Bharat can be attained by 2047: the private sector will have to find its own capital to keep growing steadily. Public-private partnerships will have to be encouraged to create a green transition in the country. The government will have to plug the gaps for MSMEs (micro, small and medium enterprises) to keep growing. A policy will be needed to fill the skills gap so as to enable the country to continue growing. To shape the policy, the capability of the state machinery and the system will need to keep pace.
If it is a long-term goal for a quarter century, where do we begin from now? First, there is good news for taxpayers. The standard deduction is being raised from Rs 50,000 to Rs 75,000. The slabs are being tweaked so that employees can save up to
Rs 17,000. Professionals are going to get incentives to join the workforce. Over two million youngsters will benefit from it. Not just the salary income, but the exemption for capital gains is also being raised for those who make gains on investment.
Thus, the Budget will help the middle class, which will have to pay lower taxes. The irony is that the poorest, who don’t have to pay income tax, will nevertheless have to pay for virtually all that they must consume as goods, which fall under the ambit of the GST. More GST-linked reforms can be undertaken by the Centre and the states, though consensus is always hard to achieve. Besides, it is unfair that the Centre makes a killing from cess, which it does not have to share with the states; the latter need all the revenue they can procure for projects to meet development targets, such as ensuring that poor children get educated.
The Budget has also approved several big-ticket projects designed to please the BJP’s allies — the Nitish Kumar-led Janata Dal (United) and Chandrababu Naidu-helmed Telugu Desam Party. The move by the BJP, which does not have an absolute majority on its own, is aimed at remaining in power at the Centre.
Major projects include the Patna-Purnea and Buxar-Bhagalpur expressways. Besides, a two-lane bridge will be built over the Ganga in Bihar’s Buxar district. Additionally, a 2,400-MW power plant will come up in Bhagalpur’s Pirpainti. Railway and roadway projects have been announced for Andhra Pradesh. Moreover, a sum of Rs 15,000 crore has been announced for the development of its new capital, Amaravati.
The Budget, which is a political act, has a clear goal: to ensure that the BJP’s coalition partners — without whose support the saffron party will not be able to stay in power — and the middle class are content. The objective to please the latter is driven by the gut feeling of the traders who dominate the leading party. In terms of sheer numbers, the small middle class cannot determine electoral outcomes. The motive of the ruling dispensation is to make the masses happy.
In the short run, things are going well for the government. Even the global commentariat has lauded the high growth rate. But for the growth to be sustained, workers must develop better skills and maintain good health. The Budget has introduced only token programmes to address these key issues. Thus, the overall feeling is that while the ruling party understands political compulsions well, it is not being far-sighted.
The expectations from the Budget have also highlighted three issues that need addressing, irrespective of what is happening on the ground right now. Despite buoyant growth, the consumption demand is soft, and employment is a serious laggard. Are large numbers of people not getting the fruits of high economic growth? And — this is a bit more technical — is the low level of inflation as robust as it is cracked up to be?
Many have argued that the growth rate is not as high as it is made out to be, as the economy has suffered from the setbacks of demonetisation and the Covid-19 pandemic. So, in a way, the economy is merely trying to catch up. Consumption is subdued not because people are saving more but because they are trying to repay the deep debt that they got into when they lost their source of income as a result of the two setbacks. Retail inflation is restrained not because of abundant supplies but because people are unable to consume what they would like to.
There is also a powerful contradiction. If the economy and businesses are to continue doing well, the RBI must keep the interest rates low. But then, how can banks pay a higher rate of interest in order to garner more deposits? Hence, the banks are seeing a mismatch between loans and savings.
Overall, the Budget is realistic in a short-sighted way. It is an exercise by the middle class and for the middle class. But that leaves the issues for ensuring long-term growth unaddressed.
