The first budget of the second Modi government has been presented by finance minister Nirmala Sitharaman with a declaraton that within five years, India will be converted into the world's third largest economy worth five trillion dollars. And this year's target is to outdo Britan with three trillion dollars. That is to be followed by surpassing Germany valued at 3.68 trillion and Japan with 4.87 trillion, and subsequently getting below US and China whose economies are worth 19.39 and 12.5 trillion dollars respectively.
The finance minister and prime miniser have both approached the budget as the beginning of economic policies and plans to this end. And that may be the reason why, instead of being an objective budget with income and expenditure figures, the budget tabled on Friday takes on the feature more of an economic manifesto. The observation by former finance minister P. Chidambaram that the budget speech is one without the government's revenue, expenditure and fiscal deficit and in many respects 'one of the most opaque ever', is quite relevant.
Strewn all over the budget are indications as to who will pay the price in the march to the chief goal of Modi govt 2.0, i.e. the USD 5 tr economy, and how deep its damage on the federal nature of the economy will be. The government's hope is that by attracting huge foreign and private investments, resource mobilization can be strengthened. For this, the government plans divestment of public sector undertakings at a higher scale that under any previous government. For this year, the budget aims at raising Rs one lac crore through divestment. In addiion, in sectors that have already been opened for private sector such as road, rail and aviation transportion sectors, the government aims to bring in another lac crore rupees worth of private and foreign investment over the next five years. In railway alone, a capital inflow of 50 lac crore rupees is ancipated by the year 2030. This means that in the near future, not only roads, but trains, rail tracks and airports, and Air India will all be converted into private enterprises. And then, even the capital for commercialization of space technology will have to be generated from abroad. It is impossible to gauge the extent of price to be paid to facilitate such huge foreign investments.
The capital incentive of Rs 70,000 crore to the banking sector may give an immediate stimulus to the economy. There has been a consensus to focus on mergers in banking sector, and limit the number of public sector banks to eight. The government plans to ensure revenue mobilization through special tax from the affluent, and fuel cess from the common man. It is the common man's budget that will be disrupted most by the additional burden indirectly imposed on essential goods. For, imposition of the cess of two rupees on petrol and diesel, will result in considerable increase in prices. And since the cess is being increased under the head of excise duty, the benefit of additional revenue will be denied to the states, and will be limited to the Centre. Further, in order not have a fall in central revenue, the share of the states has also been reduced in this budget. The grouse made by Kerala's finance minister Thomas Isaac is that the state wll suffer a reduction of Rs 6,000 crore of revenue. The allocations have also been trimmed for employment guarantee scheme and Ayushman Bharat, both of which benefit the common man. There are no major schemes for solving agrarian problems or any serious announcements on that score. The budget is also silent about the means to address drought which more than half of the country has faced. The calculation that the agricultural sector can be revived by forming 10,000 agriulture produce marketing co-operatives and by developing 75,000 agro-industrial entrepreneurs, is in the current situation, an overblown optimism. The beneficiaries of concessions to imported defence equipment will be America and Israel. The indications from the tariff proposals is that Trump's recent pressure politics has had its impact.
If the country has to become a five trillion dollar economy, as wished by the prime minister, an economic growth rate of 8 per cent has to be sustained. But the growth rate this year has been the lowest in the last five years, and the projected rate for next year is 7 per cent. Investment raio to national income, which used to be 39 per cent is currently 29 per cent. The budget says that this has to be raised to 35 per cent. Only when it reaches 40 per cent can there be the hope of achieving the target which, given the prevailing situation is not easy. Overall, the global economic recession, and the specific financial crisis faced by the country, will make it not easy to realize the goal declared by the prime minsiter and the finance minister - of being the world's third largest economy. And that is the clue given by the unfilled blanks in the budget.