Like the four earlier budgets of this government, the budget for 2018-19 has also come and gone, leaving very little positive impact. I was not in Delhi on this year’s budget day. I was far away in Narsinghpur in Madhya Pradesh, amongst the farmers of that district. I listened to the budget speech of the finance minister (FM) on the only TV available in the circuit house, before marching to the collectorate with the farmers of the area to hold a dharna. Unlike Delhi and other metropolitan cities where the annual budget is awaited with a great deal of excitement, there was hardly a ripple in Narsinghpur where indifference to it ruled supreme. I finally read the budget speech on my return to Delhi many days later.
There is a great deal of difference between listening to a speech and reading its text. So, while reading the speech I noticed that apart from its poor English and some grammatical errors, it also contained a Freudian slip. In paragraph 8 of the speech the FM says “Now, our government has taken Ease of Doing business further by stressing on ‘Ease of Leaving’ for the common men of this country, specially for those belonging to poor or middle class of the society.” For me, the budget was over the moment I came across this sentence. The budget is obviously in preparation for the “Ease of Leaving” for this government whenever the next Lok Sabha elections take place.
In the earlier paragraph, the finance minister talks of the improvement in the ranking of India as far as ‘Ease of Doing Business’ is concerned, by the World Bank. Here, the Ease of Doing Business has been put under single inverted commas and each word starts with a capital letter as above, but in the next paragraph the single inverted commas are missing and the letter “B” in business becomes lower case. Similarly, should “common men” not be read as “common man”?
The budget speech is serious business. Part A of the speech is prepared by the chief economic advisor and Part B by the revenue secretary. In my time, both parts were submitted directly to the finance minister and it was the latter’s job to go through the two parts, synthesise the two styles into one and leave his imprint on it. I remember reading the budget speech at least 15-20 times during which I paid attention to the construction of each sentence and the significance of every word. In such intensive revision, there was no question of a Freudian, or any other, slip.
What good is a FM who does not apply his mind even to the language of the budget speech? Is it a surprise, therefore, that he did not apply his mind also to the various schemes in the budget, which he has left uncooked or half-cooked?
The FM has squandered the glorious opportunity he had on account of the huge decline in petroleum crude prices immediately after the government assumed office in 2014. The government went on raising excise duty as prices fell, mopped up the surplus for itself without passing on the benefit to the consumer. It took credit for keeping the fiscal deficit in check in the previous four budgets. Now that petroleum crude prices have increased moderately, it has lost control of the fisc and the fiscal glide path projected earlier has gone for a toss. The FM calls it “statistical”. My concern, however, has always been the revenue deficit, which according to the Fiscal Responsibility and Budget Management Act, which I had drafted, was supposed to become nil in three years’ time. Unfortunately, first the UPA regime and now this government have treated an act of Parliament with complete disdain and taken unwarranted liberties with the fisc. What is more disconcerting is the fact that the revenue deficit, which was projected as 1.9 per cent of the GDP in the budget estimates of 2017-18, is projected to go up to 2.6 per cent in the revised estimates. Even in the Budget Estimate (BE) of 2018-19, it is supposed to be 2.2 per cent of the GDP compared to the actual of 2.1 per cent in 2016-17. The Effective Revenue Deficit has gone up by a large margin of 80 basis points from 0.7 per cent in the BE to 1.5 per cent in the Revised Estimate (RE).
My two points here are: (i) The government has to be consistent — it cannot project fiscal deficit control as a virtue when it suits it and describe its breach as merely “statistical” when it does not, and (ii) it is the revenue expenditure which must be kept under check and not the capital expenditure. In 2017-18 the revenue expenditure has gone up by over Rs 1,07,321 crore between the BE and the RE and the capital expenditure has declined by Rs 36,336 crore. This explains the slippage on the revenue deficit side.
On the tax side, the FM expects to lose Rs 7,000 crore during FY 2018-19 on account of extending the corporate tax concession to more companies. Similarly, he expects to lose Rs 8,000 crore by extending the standard deduction of Rs 40,000 to the individual taxpayer. He expects to gather Rs 20,000 crore through the imposition of the Long Term Capital Gains tax on equity transactions. And he expects to garner Rs 11,000 crore by increasing the health and education cess from 3 per cent to 4 per cent.
The FM has also admittedly reversed the trend of the last two decades to reduce customs duties by increasing customs duties on a number of imported items. It is a reversal to the old Director General of Technical Development (DGTD) days when Made in India was promoted through protection rather than competition. Empirical evidence will show that Indian industry flourished more when it was exposed to global competition rather than during the protectionist years of the socialist raj. Be that as it may, the FM has not given any estimate of revenue gained as a result of these changes. In a nutshell, therefore, the tax arithmetic of the budget is a loss of Rs 7,000 crore plus Rs 8,000 crore, which is equal to Rs 15,000 crore, and a gain of Rs 20,000 crore plus Rs 11,000 crore, which is equal to Rs 31,000 crore, resulting in a net gain of Rs 16,000 crore. If you add the undeclared gain on account of customs duties, the last budget of the finance minister can only be described as a taxing budget.
As has already been pointed out by various commentators, the two earth-shaking announcements in the budget, namely giving the farmer at least 50 per cent more than the cost of his produce and the National Health Protection Scheme, have not been funded in this budget. Someone once asked me “what is the difference between an election manifesto and a budget?” My reply was simple, “in an election manifesto, you are not required to give estimates of expenditure of the various schemes mentioned in the manifesto, in a budget, expenditure on every item has to be clearly spelt out.” But then, how does it matter if you believe in the “Ease of Leaving”.
Budget 2018-19 is thus more a manifesto for the 2019 elections than a budget for the next fiscal.