Disappointing Budget With no Device For growth And Job Creation: P. Chidambaram

 Disappointing Budget With no Device For growth And Job Creation:  P. Chidambaram

 The Finance Minister presented the budget for 2017-18. It was his, and his government’s, fourth budget. I read through the 37-page, 184-paragraph budget speech and the 21-pages containing five appendices and an untitled section. It was a painful duty. At the end of the day, our conclusion is that the elaborate exercise has turned out to be a damp squib. 

There are a few positives in the budget, and I am happy, and I shall refer to them in the course of my interaction with you after this opening statement. The most important positive is that the government seems chastened after the debacle of demonetisation and has not done anything reckless or disruptive. I compliment the Finance Minister on adopting a tone of moderation. 

 It is, however, obvious that demonetisation and its inevitable consequences have demoralized the government. Government has retreated from reforms. And the government has no answers to the severe challenges faced by the economy.  Key sections of the people feel cheated and let down.  

 Demonitisation 

The sections of the people most affected by demonetisation were the farmers, farm workers, manual labourers, the self-employed, artisans and micro, small and medium businesspersons. They lost crores of rupees in the form of wages, incomes and capital. There is absolutely nothing in the budget for these sections. We had demanded that the government offer them compensation in some form, but the government has cruelly neglected them. 

 The demonetization does not have any spill over and also abolition of FIPB route, Shri Chidambaram said I disagree with the first conclusion. I think you will find the effect of demonetization continues in 2017-18 and probably even in part of 2018-19. I will tell you why - over 75% or 80% of Medium industries are closed. I am familiar what has happened in Tripore, Coimbatore etc. I was in Hyderabad. They told me about what is happening in Hyderabad Medak area. Likewise all the industrial hub towns, these MSME are closed down. If you close down a business, it is not easy to revive it. If your capital is wiped out, it is not easy to revive it. You account has become NPA. It is not easy to get further credit. Therefore the spillover effect of demonetization will be felt in 2017-18 as well as 2018-19. 

 As far as your other question is concerned, he has only said that since 90% of investments are already on the approval route, there is no reason to continue the FIPB which is unexceptional but for the remaining 10%, which requires approval, if it is not by FIPB, it will still be under some other body. So, there is wait and see what alternative mechanism which is simpler and easier than FIPB is put in place. According to me, FIPB was quite simple and easy. But if the numbers have shrunk, may be they have no justification to ask 5 Secretaries to sit together to decide an FIPB. If it can be given to one or two Secretaries, let us wait and see what alternative proposals they come up with. 

 On the question what your Government had done in this situation, Shri Chidambaram said I would have resigned on 8th of November. I think that is a wrong question to ask an Opposition Party. We have listed ten issues  we would have handled these ten issues differently. We would have taken a different path in addressing these ten issues. If you go through the statement, you would find each of the ten issues, we think, the approach of the Government is wrong and there is an optimistic approach and if we were in Government, I had no doubt, we would have adopted the alternative approach. 

 On the reckless approach, he added I cannot imagine recklessness. Demonetization was reckless but what other reckless or disruptive steps are in the armoury, I do not know but I am glad that no step which I can describe in this Budget as reckless or disruptive. 

 The acute distress in the farm sector.

  The government seems to be totally oblivious to the plight of the farming community. The best signal to the farmer is a remunerative price for his produce. The Finance Minister has not even uttered the phrase ‘Minimum Support Price’ in his speech. The farming community has been totally cheated by the budget. 

 Jobs. 

 The most vocal demand of the people, especially the youth and their parents, is, Where are the jobs? The NDA promised to create 2 crore jobs every year. Their best result so far was 1.5 lakh jobs in 2015-16. There is absolutely nothing in the budget that points to a change of strategy to create new jobs.  

 Declining investment.  

 Gross Fixed Capital Formation (GFCF) has declined since the NDA government assumed office. According to the Economic Survey, it was 4.9 per cent in 2014-15, 3.9 per cent in 2015-16 and has precipitously fallen to -0.2 per cent in 2016-17. There is absolutely nothing in the budget in terms of either new strategy or policy measures to revive private investment. 

 Reviving growth.

 It is now widely accepted that the growth rate of GDP has taken a hit due to the global situation, inadequate policy measures and the ill-conceived demonetisation. The Economic Survey resorted to a ‘sleight of hand’ when it claimed that there will be a reduction of 0.25 to 0.50 per cent ‘relative to the baseline of estimate of about 7 per cent’. That’s a convoluted way of saying that the growth rate will be 6.5 to 6.75 per cent against the forecast of 7.6 per cent at the beginning of 2016-17! Actually, it will be worse. It will be worse not only in 2016-17, but the period of lower growth will extend to 2017-18 and 201819. There is absolutely nothing in the budget that points to measures to revive flagging growth.  

 Boosting aggregate demand.

 The tried, tested and the best way to boost aggregate demand is to cut indirect taxes, especially excise duty and service tax, that is paid by every consumer of goods and services — poor, middle class and rich. Such a cut would have also given immediate relief to crores of people. Government has foolishly rejected this option. I am afraid the country will pay a heavy price in terms of poor demand, lower sales, fewer jobs and closures of micro, small and medium enterprises. 

Pitiful tax cuts.

 The tax cuts announced by the Finance Minister are, at best, tokenism. If you do the math, you will find that he has given 1.98 crore taxpayers a relief of, on average, Rs 5000 per taxpayer. We welcome this relief, but it is small mercy for a person who stood in a queue for many hours for many weeks in order to withdraw small amounts of money from his or her account. The correct tax cut, I reiterate, would have been a cut in indirect taxes that would have benefited many more crores of people, including industry and business, apart from boosting aggregate demand. 

Fiscal responsibility. 

 For the second time in four budgets/years, the government has discarded fiscal prudence and violated the FRBM Act. In 2015-16, the target of fiscal deficit (FD) should have been 3.6 per cent; instead it was kept at 3.9 per cent and the CGA/CAG have reported that it was actually 4.31 per cent. Now, again, the target for 2017-18 should have been kept at 3 per cent, but the government has set a target of 3.2 per cent. Analysts, bankers and investors, in India and abroad, will not take kindly to this disregard of fiscal responsibility.  

 A wasted opportunity. 

 The Appendices to the budget speech contain at least 85 changes to various provisions of the Income-tax Act. No average tax payer can understand or keep up with these changes. Every change is intended to ‘rectify an anomaly’ or ‘plug a loophole’. 

 This process will never end. That is why it is imperative that the draft Direct Taxes Code should be updated and enacted. It is strange that the government refuses to do what is wise and right and persists in doing what is unwise and wrong. 

 The GDP puzzle. 

 What is the correct nominal GDP number for 2016-17? According to last year’s budget documents, the nominal GDP for 2016-17 was estimated at Rs 150,65,010 crore. According to the CSO’s press release dated January 6, 2017, the Advance Estimate is Rs 151,92,588 crore. According to the budget presented yesterday the Revised Estimate is Rs 150,75,429 crore. Which number should we believe? 

Fasal Bima yojna 

 The Fasal Bima Yojana will now cover 40% of the cropped area in 2017-18 and 50% in 2018-19  - that is a good move but please remember Fasal Bima Yojana is after the crop has failed. What we need is to ensure the crops do not fail and ensure that production and productivity increase.

 On the proposals like Antodaya and lifting the people from below the Poverty line, Shri Chidambaram said it depends on the strategy adopted. In ten years of UPA, 140 millio people were indeed lifted out of poverty. But that will happen only when the growth is high and per capita income rises. If growth dips, then you cannot lift people out of poverty. These are good targets but what we need is a strategy to tell us how growth will be maintained. I am wishing the Government meets our growth record of 8.5% in UPA and 7.5% for all ten years taken together. They are at the moment below that level of achievement. I wished them three days ago along with Dr. Manmohan Singh. I wish them now. They should raise growth rates to 7.5% and 8% which I am afraid, they are not in position to achieve today. 

 On GST 

 Rolling out of GST as indirect tax, how would have handled the issue, Shri Chidambaram what we did when I returned to the Finance Ministry in 2012. We did cut indirect taxes in order to boost the market which is why in the last two years of UPA, despite a hostile external environment, growth rates were according to CSO 6.1% and 6.9% when oil prices were as high as 110 Dollars per barrel. We do not know when GST is going to be rolled out. I cannot imagine GST being rolled out before October 1, which means we have six months. In these six months, if you cut indirect taxes, they would have come into effect immediately. Unlike direct tax, cut in indirect tax comes in to force immediately. So you would have had from Feb to September, full 8 months to boost the market and when GST will roll out, even Dr. Vijay Kelkar has recommended that to start with a reasonably low rate and then after six months or a year, when the economy and growth rate are picked, you can go back to what the CEA calls a standard rate. I think these 8 months, could have been utilized to boost the market and the tried tested way for boost demand, anywhere in the world is to cut indirect taxes not direct taxes. I would have done that. Our Government would have certainly cut the indirect taxes in this 8 months period.

On the statement of the Chairman of CBDT to look into the cases where huge amounts have been deposited, Shri Chidambaram said he has given some figures. He has said that in certain accounts, the average deposit of Rs. 3 Crore and in certain number of accounts, the average deposits are large. Now we have no objection if they can issue notices to each one of them and examine those accounts. But I am sure those who deposited the money will have an explanation but if you are asking me, does the Income Tax Department have the capacity to review so many accounts and do an investigation. I think the Department will be over stretched, if they open so many accounts. They will have to find a way where a preliminary enquiry is done and a serious in depth probe is done only in a smaller number of accounts but we have no objection. We have certainly no quarrel with investigating accounts where there is good reason to believe that black money has been deposited. We would welcome it and support it. 

the tendency of the present Government that they have done it in the matter of decreasing the allocation, Shri Chidambaram said an analysis shows that total expenditure to the percentage of GDP has declined this year which is to me a matter of great surprise. They have saved 0.5% of GDP by compressing total expenditure as a percentage of GDP.  0.5% of GDP will have given them Rs. 75,000 crores and that should certainly have been spent on Health, Education and something which you may not have noticed - even Defence. Defence Capital has got pitiful allocation. We know from reports and other information that we have that they are on the buying spree today. Even Defence Capital has only got about 86,000 or 87,000 crore. Who is going to pay the Bills? So, I think not only social sector like Health and Education, perhaps are being neglected, but was a  vital sector like Defence capital expenditure is being neglected, because you have compressed total expenditure in order to appear that you are on the path of fiscal prudence.   

 On MGNREGA 

The allocation in MNREGA, they say Rs. 48,0000 crore is the highest allocation. It is one more instance of this Government’s  U-turn and flip-flop. Throughout the Budget speech, you will find emphasis on Aadhar, Direct Benefit Transfer, MNREGA, PM Avas Yojana which earlier was Indira Gandhi Avas Yojana. So many new schemes are the schemes that were announced and implemented in the UPA or earlier Congress regimes. We are very happy that they are eating their words and implementing these schemes. If they are happy eating their words, why should I deny them their happiness?  

 Economic offenders 

 On economic offenders managing to flee the country, Shri Chidambaram said I would be surprised by the statement because the laws today allow for confiscation  both the Prevention of Corruption Act and the Money Laundering Act allow for confiscation of property of proclaimed defaulters, proclaimed offenders and absconders. What new Law is going to be made I cannot say. Let us wait for the new law.

Black Money and Income Tax Department.
Whether going after the people is a fool proof method if Income Tax Department identify the people and whether it will scare them further,  Shri Chidambaram said if you have not noticed it so far, Inspector Raj returned sometimes ago. There is Inspector Raj today especially the Tax Enforcement Department. So, I have written about and spoken about it. Now let us not assume that every account is suspect or unclean. There could be a person who has legitimate amount of cash in hand which he has deposited in the Bank and as long as he is able to show a cash balance on his Balance Sheet or Income Tax Return, and he put it in the Bank because the currency was demonetized, that is not black money. So I think we should suspend the judgment. Let us find out how many cases they actually investigate and conclude that prove that it is black money but as I said we fully support any measure to investigate, detect and punish those who have deposited unaccounted money or unaccountable money in the bank account. 

 on advancement of the Budget. 

 If Budget could have been deferred in view of elections in five States, we had welcomed the advancement of the Budget in principle because it is good to have the Budget passed before the end of the financial year. What we said was in this year, because of the five state elections. Going by the precedence of 2012, you should present the Budget on 11th March. Now, you cannot present the National Budget that has no impact on the five States. Every announcement made will have some impact on the five states but I think the people of these 5 states are wise enough to know certain attempt may have been made to influence the election. As I said earlier on another occasion, elections are fought on different issues. And as I said by and large damp squib people have stopped talking of budget 24 hours after the Budget was present. I do not think there is major impact on 5 states and I read an article by the CM of UP who said this Budget does nothing for UP. 

 Capitalization of PSU 

 About the capitalization of PSU in the Budget, Shri Chidambaram said totally inadequate. What does this mean? If you are given only Rs. 10,000 Crore and the banks require may be four times or five times of the amount, the only other way for the Banks is to dilute the Government’s equity or issue/raise fresh capital or sell their non-core assets. These are not easy avenues. It is not easy in today’s capital market for any of our public sector banks because their balance sheets are so weak, who is going to invest new capital in those Banks and secondly saving non-core assets is so difficult with every transaction are suspect. If every transition is viewed with suspicion, which Chairman is going to authorize selling of non-core assets to the bank?

 On the question of aligning the fiscal year with the calendar year and is it possible to use the money demonetized, Shri Chidambaram said we will examine it more carefully. I think the idea that appeals to me that the Budget and the Finance Bill should be passed before 31st March that makes a lot of sense. The Finance year is going to start from 1st of April. It is good to complete the Finance Bill by 31st March. What you are saying is even more radical - align the financial year with the fiscal year  that would mean the Budget should be passed in November-December of the previous year. That is not going to happen so easily.   

Then Budget papers make it clear that there is no such money. Something which the Government has admitted in its budget papers, that the dividend becomes under the head ‘dividend’. RBI’s dividend is included in it. RBI public sector dividend is only 74,000 Crore as against last year’s Rs. 76,000 Crore which means they are not getting a bonanza from the RBI. At least as far as the Budget numbers are concerned, there is no indication of any bonanza from the RBI. And I think the RBI Governor made it clear many weeks ago that demonetization will have no impact upon the balance sheet of the RBI and a question of declaring special dividend by extinguishing the liability does not arise. I think we have made it quite clear and the Budget document does not show any bonanza at all. 

 Railway budget

On the justification of railway budget, Shri Chidambaram said there are two views  one view has been very forcefully expressed by our former Chairman of Metro Mr. Sridharan and he has said very strong words and said it is a foolish move. Now, all that has happened is they have saved themselves the difficulty and the embarrassment of announcing new trains and lines, that is all that has happened because the GBS is still provided from the General Budget and is provided Rs. 55,000 Crore and then the total capital expenditure of Railways has been announced at Rs. 1,31,000 Crore. How that Rs. 1,31,000 Crore will be spent is not apparent from the Budget papers that I have seen so far. Even after this exercise, the Railway Ministry would still have to Budget the Rs. 1,31,000 Crore but in the process some very significant information that is available  e.g. what is operating ratio  we do not have that number and that is very important. I think there are both pluses and minuses. Hopefully, now that the die has been cast and the railway budget has been abolished and has been merged with the General Budget, future Government will devote more than one paragraph to the Railways.  I think the Railways deserve half a dozen paragraphs. 

 Altogether, I am disappointed that the government has not used the opportunity to push through bold reforms, revive aggregate demand and growth, and devise new strategies for job creation.



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