Mercifully, the extent of this excess is not as yet so great as to cause major worries.
Indians have for long taken far deeper interest in the annual Budget of the Government of India and parsed it to a far greater extent than any other people in the world. At one time, in the good old licence-permit raj days, there was reason to do so: The aam aadmi and aurat would wait anxiously for which of their daily necessities would be further taxed by the government, or how the few who paid income and other direct taxes would be burdened more. That period has long gone, happily for most people, but the Budget continues to arouse ever greater interest. Newspapers carry the Budget, its analysis and commentaries on it days after the event. Its live broadcast is followed by prolonged (and repetitive) sessions of the commentariat on the hundreds of news channels, even when the Budget involves not much more than an annual accounting statement that the Constitution enjoins governments of the day to present.
But even against this backdrop and considering the fact that this was the last such exercise of an incumbent government, the anticipations before this Budget and the discussions following it were extraordinary. This was to be expected, since the defeat of the Bharatiya Janata Party (BJP) in three central Indian state Assembly elections just months before the nation goes to polls made it more than likely that the government would use the Budget to gain an electoral advantage. The “interim Budget” did indeed attempt to do so. Three sets of issues need to be addressed in this context: Was this indeed an interim Budget (and was the government right in doing what it did); how realistic are the Budget numbers and whether the Budget covers all that needs to be done.
Article 112 of the Constitution requires the government to present an annual financial statement but it does not stipulate that a government near the expiry of its term should do so only as in interim exercise, devoid of any policy or other major decisions. Democratic propriety, however, should weigh in favour of just such an exercise, which would leave the incoming government not burdened with the fait accompli of its predecessor. But this high moral ground is seldom traversed by Indian governments. Earlier “interim budgets” have transgressed such limits by claiming that some major decisions cannot wait, as P. Chidambaram did in 2014 when he proposed changes in excise duties and service tax. So while we swear by propriety, we do not always observe it. The Piyush Goyal Budget was no exception; it was interim only in the sense that it sought expenditure authorisation for four months, and not the whole financial year.
The budgetary deficit is now rightly considered to be the most important parameter, which in turn is based on assumptions about revenues anticipated and expenditures planned. Current Budgets revise figures based on such assumptions made in the previous year, in the hope that the new estimates would be justified in light of these revisions. The 2019 Budget states that there will be only a marginal slippage of the deficit from the anticipated 3.3 per cent of the GDP to 3.4 per cent in the financial year 2018-19. That should please the budget hawks, but niggling doubts remain about financial legerdemain governments have routinely used to camouflage reality. This budget is no exception. Apart from the by now routine recourse to off-budget transactions of some expenditures, the revised estimates also appear to have understated likely budgeted expenses on various subsidies which could result in a larger than stated deficit. Mercifully, the extent of this excess is not as yet so great as to cause major worries.
The Budget has three bonanzas for certain segments of the population: A Rs 6,000 direct income transfer to each of 12 crore small and marginal farm families annually (likely cost: Rs 72,000 crore a year), a full rebate of income tax to all those with taxable income of Rs 5 lakh a year, and a contributory pension scheme for workers in the unorganised sector. Well over 60 per cent of the population is expected to benefit from these give-aways estimated to cost around Rs 95,000 crore. Whether these allocations are adequate to meet the heightened expectations is being questioned, especially in the case of the farm income transfer.
This transfer can be truly considered a top-up, and not any variant of the much-discussed universal basic income (UBI). It is not universal at all. And it falls well short the scale of deprivation of the poor as measured by any acceptable yardstick. That has been the ground of criticism by both political opponents (read Congress) and some economists.
But even so, realistic considerations should make us welcome it. If one were to go by the calculations of Vijay Joshi of Oxford, who first proposed UBI in the Indian context, or Arvind Subramanian, the former chief economic adviser to the government, who discussed it in the Economic Survey 2016-17, true UBI would cost between 4.5 and 6 per cent of the GDP. Even if subsidies such as those for food and fertiliser and schemes such as the Mahatma Gandhi National Rural Employment Guarantee were to be subsumed under UBI, my own calculations show the commitment of resources to be well over 2 per cent of the GDP. Targeting only half the population would shave off another percentage point. These decisions of withdrawing subsidies or schemes are extremely difficult in the best of times, and well nigh impossible in periods just before elections.
Governments make budgets to retain and consolidate their hold on power, not to please economists. They do so by trying to please as many as possible without causing harm to the others. Greater giveaways add to the expenditure that the government can undertake only with additional deficit, which in turn is a cause of alarm as it triggers inflation, hurting everyone. With this Budget, the government seems to have walked a very tight rope, of balancing the available (stretched) resources and the need to benefit as large a group as possible. We will know in three months whether this ploy has succeeded.