The first budget of Modi-3.0 is to be presented this week. Every section has some expectation.
Following the somewhat lukewarm response to the ruling BJP in the recent parliamentary poll, it is expected that Finance Minister Nirmala Sitharaman would offer a financial salve to the traditional support-base of the ruling party in urban and semi-urban areas. At least a higher exemption limit for middle-income tax-payers is awaited eagerly. Or a new, and inflation-beating long-term savings instrument.
A large percentage of the young employed are putting their money in share markets; an attractive savings scheme could help raise the savings rate in the economy. Retail inflation still rules uncomfortably high for the central bank to consider reduction in the prime lending rate, Sitharaman may have to unveil steps to ease the price situation. The budget comes only a few months ahead of the Assembly polls in a number of states, including Maharashtra and Haryana.
She may have to tailor-make a few proposals to ease the farmer distress particularly in those two states. Thanks to the efficient management of the economy the Centre’s fiscal situation is better than expected. In 2023-24 the budget estimate for fiscal deficit was 5.
9% of GDP. According to the interim Budget the government expects to contain it at 5.1%, no small feat given the tremendous increase in welfare and infrastructure spending.
Of course, the more than generous cheque the RBI wrote for the government went a long way to ease its fiscal situation. This should help Sitharaman meet the demands from various sections for hand-outs. However, she will be called upon to tread carefully, keeping in view the overall fiscal situation on the one hand and the need to offer well-directed incentives to industry and business to boost growth and jobs, on the other hand.
Creation of jobs without growing the economy at a decent clip for at least a decade or so is unthinkable. Jobless economic growth can help create more billionaires but not offer employment to tens of millions joining the job market every year. The Production Linked Scheme was a good idea but it has helped to attract only a few industries, notably, Apple and a couple of electric vehicle makers.
PLI has barely made a dent in the jobs market. What the country needs at this stage of economic development is growth in the labour-intensive sectors, such as ready-made garments exports and building construction. Private sector capital expenditure has hardly grown, with the central government alone spending majorly on infrastructure development.
In this respect, even the states have been laggards, freely expanding the welfare net without generating new revenues to pay for the old and new schemes. The modest capex increase achieved by the states in the post-pandemic years was financed through borrowings from the central government’s interest-free 50-year loans. With fierce competition among ruling parties at the Centre and the states to distribute more and more freebies there has to be pressure on the overall fiscal situation.
The case in point is the manner in which the ruling Mahayuti alliance in Maharashtra has taken to distribute goodies to ‘ladli behnas and laadka bhaus’ with an eye on the coming Assembly poll. It not good news for fiscal consolidation. It is however unlikely that the freebies spree will end unless there is an all-party consensus on responsible and productive budgeting.
Meanwhile, the Centre faces the challenge of making significantly higher allocations for Defence, Education, Health, etc. Without making the wealthy to pay a slightly bigger share for national development the task of expanding the economy will remain difficult. The uninterrupted bull run on the bourses has created humongous wealth for the already wealthy.
They must not grudge contributing a little bigger share to Sitharaman’s kitty. Reintroducing wealth tax may not be a good idea but there is little doubt in our mind that the uber rich must make bigger contribution for the sake of national development. One fact which stands out, and reveals the growing gulf between the rich and others, is that the sale of entry-level cars has remained stagnant for some time while those of high-end luxury vehicles is seeing high growth.
Without turning protectionist, and slapping prohibitive tariffs on high-end goods such as cars, various electronic goods and hard liquor, a measure of fairness to curb growing disparity between the rich and the poor may be urgently warranted. The Finance Minister must not forget that in the newly-minted Leader of the Opposition she has someone who is determined to spew socialist spiel, unmindful of the disastrous results it had thrown up a few decades ago, with his gaze fixed on pandering the have-nots for votes. It is for her to balance the interests of both the haves and the have-nots in the larger interest of economic growth.
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