What could be India’s ‘once in a century budget’?

Indian Finance Minister Nirmala Sitharaman, while talking to Confederation of Indian Industries (CII) virtual summit created huge curiosity around the Union Budget of 2021-2022 when she told the country’s corporate czars, “Send me your inputs so that we can see a Budget which is a Budget like never before, in a way.”

The budget, which is to be presented on February 1 in the Parliament is indeed being drafted in “like never before” India — when the economy is, technically, in a recession.

There is a drop in the rate of GDP contraction in the second quarter at 7.5% from 23.9% in first quarter with the revival of economy showing some green shoots. FDI equity inflows have been around $30 billion during the fiscal year.

One of India’s foremost merchant bankers with trading experience of half a century in the stock market told Gulf News, “Clearly, the foreign investors have loudly stated hopes in the Indian economy of 2021-22. I think there is perception in the West that India’s rupee will not depreciate much. This sentiment is having a positive impact in the Stock trading.”

But, as Vivek Kaul, author of Bad Money recently wrote, “despite our inherent desire to feel positive about things, that time hasn’t arrive as yet.” Kaul scanned through 21 economic parameters for September-October 2020 and compared it with last year. In 17 out of 21 major economic indicators, the economy is still worse off than a year ago.

Mahesh Vyas, from the Centre of Monitoring Indian Economy, who constantly carries out surveys and creates massive databases with help of 1,74,000 sample size told Gulf News, “When you look at this big data, collected after Covid till now, the employment data worries me the most. The employment rate did recover but there is still a gap between the employment that was there before the lockdown and now.

Falling household incomes

The wages are lower than before. Also, the decline in Indian households’ income is worrying but preliminary numbers suggest that approximately 30% to 35% of the households used to tell us before lockdown that their incomes were higher than a year ago. That number, which was 35%, has now fallen to 4%. So, that means 96% of the people are saying that their income has either not grown, or it has declined.”

He adds, “So employment has recovered partly but it looks like income has not recovered. The hit is very hard in non-farm sectors. The transport and tourism sectors, the hotel and restaurant sectors have also been hit.”

Obviously, Sitharaman who is juggling this data knows that if the Budget 2021-22 falters on hopes, the national loss in terms of the opportunity will be historic.

At the CII event she said,“ 100 years of India wouldn’t have seen a budget being made post-pandemic like this. We owe it to humanity that we all put our heads together, plan something and come up with a budget which can play its role in reviving economy.”

The budget can’t endure big dreams unless India takes not-so-desirable and risk-fraught big-time infrastrture-loans from IMF and World Bank. There is no such movement at all in that direction. Vyas agrees that Sitharaman has announced impressive stimulus packages.

But he argues, “The stimulus packages were impressive but the Finance Ministry has not spent the money. There are announcements but there are no spending. In the first half the spending was almost the same as last year which was not a Covid year. There is no advantage of the announcement because announcements don’t translate into actual substantial increase in government spending.”

When asked about easy credit availability and cheaper loans to poor and middle classes (after the announcement of stimulus), Vyas said, “If the Government says go to the bank and get credit, in these difficult times, it looks like people are not really enthusiastic to increase their borrowing. When your income sources are challenged, you would not like to take more borrowing.”

Revive growth in the short run

Government’s critics are arguing since July-August that the supply-side measures can’t do much to revive growth in the short run. India needs a fiscal boost aimed at stimulating demand. Sanjaya Baru, senior economic editor and author told Gulf News, “I think the Budget should increase spending on the MGNREGA. We need exclusive employment-intensive public works programme.

That would help increase demand. May be direct help could be in form of bonus to government-run schools and the government-aided private schools. There is no escape from the higher public investment in health care and education.”

Shamika Ravi, non-resident senior fellow, Brookings Institution and former member of the Prime Minister’s Economic Advisory Council thinks pushing the demand up through the budgetary interventions are fine but a lot more is needed.

She told Gulf News, “We need a mix of strategies — both supply and demand side interventions are needed. For instance, on the demand side we need to make large and urgent investments in infrastructure which boosts productivity of the Indian economy — roads, ports, airports, hospitals etc. However, as minister Nitin Gadkari warned, cartelization in the cement and steel industry is leading to huge price hikes that could dampen this effort. It may have macro implications for economic recovery.”

Talking about Sitharman’s raised hopes of the “once in a century budget” Shamika quips, “Given that COVID is once in a century event — I would expect appropriate policy response from FM — in once a century budget!”

Sheela Bhatt is a senior Indian journalist. She is based in New Delhi