Issue :   
We Wish You all a Happy and Safe Holi              March 2020 Edition of Power Politics is updated.
Issue:March' 2020

BUDGET FOR MODI 2.0

Mixed signals

Malladi Rama Rao

Finance Minister Nirmala Sitharaman with President Ram Nath Kovind
before presenting the Union Budget 2020-21. MoS for Finance Anurag
Thakur (L) accompanying her at Rashtrapati Bhavan, New Delhi.

Subramanian Swamy and P Chidambaram The Left and the Right don’t mix. Ask Nirmala Sitharaman, who has learnt the truism the hard way. Her second budget for Modi 2.0 puts to rest all lingering doubts. No surprise, Palaniappan Chidambaram and Subramanian Swamy have shown no sympathy for the fellow Tamilian in Delhi’s hot seat. In fact, PC has a oneword advice to the Tam Bram: “Resign”.
Well, the merchant of dream budgets loves his own rhetoric delivered in measured tone that often sounds empty, and has scores to settle with the saffron political executive, which made him to spend 2019 winter behind bars till his high profile lawyers could put in the rescue act.

Swamy, too, has an axe to grind with Nirmala and also with her mentor, Arun Jaitley, who had helmed finances while providing the badly n e e d e d i n t e l l e c t u a l glue to Modi1.0. And so, their c r i t i q u e cannot be taken as gospel truth. Yet Chida and Swamy need to be heard as both belong to two different ideological camps. What they say in so many words is that Nirmala’s second budget is not the prescription needed for the economy ‘perilously close to collapse.’

This critique misses the writing on the wall. And it is that under Modi, the budget is no more than a long statement meant for record books and not an annual statement of receipts, expenditure and a roadmap on mundane issues like fiscal deficit, tax reforms, and stimulus packages.

“The Narendra Modi government is performing better on all parameters of the economy as compared to UPA regime”, Sitaraman told the Rajya Sabha as she came under severe attack from the Opposition. And her contention is that she has laid foundation for increasing consumption in the budget. The Chief Economic Advisor (CEA) Krishnamurthy Subramanian has gone to the town to say that the budget is a win-win game.

Like in 2019, this year too there are going to be announcements that would make the presentation of budget a redundant process. Already there are enough indications of what is to be expected.

For instance, on 19 February that is less than a month since NS Budget 2.0, front page headlines read: “Centre plans duty cuts, other steps to soften virus impact”. A couple of days later appeared the headline that spoke about a bailout in the works for the telecom sector, which has been forced by the Supreme Court to fork out the money due to the government but parked in their kitty.

We can expect more such packages since the economy is in distress and jobs have become a mirage despite the government’s denial mode.These sops will be tailor made to the emerging situation as seen from 7, Lok Kalyan Marg, (formerly 7, Race Course Road),the Modi perch in Lutyens' Delhi. Political dividends from such exercise are natural just as from the politically guided Pranab and Singh budgets. PC had missed out cashing in on his dream budgets, deservedly, probably.

“The Narendra Modi government is performing better on all parameters of the economy as compared to UPA regime”, Sitaraman told the Rajya Sabha as she came under severe attack from the Opposition. And her contention is that she has laid foundation for increasing consumption in the budget.

Krishnamurthy Subramanian The Chief Economic Advisor (CEA) Krishnamurthy Subramanian has gone to the town to say that the budget is a win-win game. “The government has made its move with the budget. Citizens must reciprocate” he wrote in a post- budget commentary in a leading national daily, and quoted a BhagvadGita(Chapter Three) sloka “yad yad acharati shresthas tat tad evetaro janah/sa yat pramanam kurute lokas tad anuvartate” (Whatever action an inspirational entity/man performs, the world follows the same. And whatever standards the same sets by exemplary acts, the entire world pursues”).
The jury is out on their contentions but the fact remains that UPA 2.0 was no role model. Anyhow, the mismatch between the Left and the Right is visible in bold print on NSB 2.0 on myriad issues facing rural India, and also the youth for whomthere is a steep fall in job creation under flagship schemes like PM’s Employment Generation Programme (PMEGP) and Deendayal Antyodaya Yojana – National Urban Livelihoods Mission (DAY-NULM).

The number of people covered under PMEGP in 2019-20 (till Dec end) was 2.6 lakhs, down from 4.1lakhs some four years ago. No surprise the New York Times has remarked that the$428 billion budget for 2020-21 offered no large stimulus program to provide more jobs or money in the pockets of India’s 1.3 billion residents, most of whom barely get by through farming or work in the informal economy.

The Left-Right mismatch is visible glaringly on the ‘alternative’ income-tax regime on offer. Ostensibly, the finance minister is intent on ending the exemption syndrome that has become the delight of taxdodgers. But the Left in her is unprepared to go along the Right thinking. So, the old will continue by the side of the new, and it pleases neither – the exemption hungry middle class tax payer nor the tax savvy rich. Put simply,the Prime Minister’s comment (First Times Now summit on 12 February) “just 1.5 crore people pay tax in a population of 130 crore” is a lament that is neither here nor there.

Tax rate cut can increase revenue as the corporate tax cut of September 2019 has demonstrated. BJP, right from its Jana Sangh days,stands for low and simple tax structure to help economic growth. In fact, the Parivar advocates the abolition of Income-Tax, as Subramanian Swamy keeps telling whoever interviews him. But Sitaraman refuses to bite the bullet even as Bamboo Capitalist has emerged as the new darling of the world.Result: editorials with headlines “Optics and illusions” and “all smoke and mirrors”with the same message: this is the third consecutive year when fiscal deficit has breached its target, indicating deteriorating fiscal marksmanship.

While NSB1.0 was overly optimistic in its revenue projections, and the gross tax collections as a result fell short of the budgeted target by Rs 3 lakh crore, the aggressive revenue projections under NSB 2.0 are likely to fare no better. Uncertainties plaguing the economy, and the unpreparedness of Corporate India to heed Sitaraman’s call to “be equally the engine to pull economy forward” are clear pointers to the slippery road ahead.

Ambitious disinvestment (on offer include cash cow LIC and bankrupt Maharaja Air India) and non-tax revenue targets guarantee no more than talking points. The expected revenue boost from GST has not materialised in 2019-20;it is unlikely now unless there is a miracle to rescue the economy. Like the slump in crude oil prices (to the lowest levels in 13 months) a day after disappointing NSB 2.0 helped the Indian markets to recoup the budget day losses estimated at Rs. 3.5 trillion of investor wealth in market capitulation.

Also like the post-budget PMI (Nikkei India Manufacturing Purchasing Managers’ Index) at 8- year high lifted the markets, and off-set pressures from global stocks. Ganesha does not drink milk from spoon every day! If the elephant –god does, it will herald badly needed sleep for the Tam Bram at the helm of North Block on the imposing Raisina Hill.It is Alnascar dream, as of now.

The Finance Minister has have turned down the industry demand for tweaks in some budget proposals. One such proposal is taxation of dividends in the hands of shareholders at the applicable personal I-Tax rate. This is a sure recipe to increase tax liability on such pay-outs.

Another proposal that has not gone down well is the cap on employers’ tax –free contribution to the retirement savings of high earning employees, which is cut in the mode of NSB 1.0 super rich tax - namely hike in surcharge on income for this segment.

Such proposals are Nirmala Sitaraman’s way of remaining true to her JNU moorings and helping her government to duck the Suited Booted Sircar jibe hurled by the Congress with great relish. It however, makes her appear as an Oxymoron in the Modi era; it also does injustice to the Modi creed – wealth creation no crime.

In his 2019 Independence Day address, Prime Minister declared: “Let us never see wealth creators with suspicion. Those who create wealth are India's wealth and we respect them.” Four months before the I-Day, he told a rally of Delhi traders: “The Congress calls all businessmen thieves. It forgets that even Mahatma Gandhi used to proudly call himself a bania. We cannot complete the dream of building New India without traders.

”Two months later, he declared he was not scared to be seen with industrialists as his conscience was clear and that they too had contributed to the development of the country.

Put simply, Modi stood up for Corporate India three times in just one year, and elaborated on the theme he had picked up in October 2018, when he had stated “I do not believe in the culture of criticising industry. Corporates, I believe, are doing exemplary social work alongside their business”.

Well, going by the turn of events, it is clear that Modi has no takers as yet at the Finance Ministry. Also at the Commerce Ministry as well. This is not to say that there are no planks in the Sitaraman budget that show Madam has not deviated from the Moditva neither fully or substantially; her acolytes also contend that she has taken a long overdue stab at the trickle-down economics long favoured by Lutyens’ Delhi as the politically correct mantra for India’s economic nirvana.

It is too early to concede the ground to them but there is no denying that the demand for bold structural reforms to ramp up production NSB critics are harping upon is a call for easier labour norms, quick green approvals, and less regulation – all tough propositions for the government which has tied itself in knots with its excessive exuberance on nationalism. Any doubt?

Budget -a fine balancing act?

“If India is like Mumbai, perhaps we could have done away with I-Tax Act. We could then have just remained with property tax or other kind of tax. But, India is not just Mumbai or Delhi. India is India,” said Revenue Secretary Ajay Bhushan Pandey, while asserting that the tax proposals in the Budget are a fine balancing act under the current economic milieu.

Ganesha does not drink milk from the spoon every day! If the elephant –god does, it will herald badly needed sleep for the Tam Bram at the helm of North Block on the imposing Raisina Hill.

Ambitious disinvestment of cash cow LIC and bankrupt Maharaja Air India and non-tax revenue targets guarantee no more than talking points. The expected revenue boost from GST has not materialised in 2019-20;it is unlikely now unless there is a miracle to rescue the economy.

Modi creed is wealth creation no crime. Those who create wealth are India's wealth and we respect them, he has been saying for a long while. But the Budget 2020-21 shows that Modi has no takers at the Finance Ministry.