There are only two ways to deal with an economic slowdown. One is through consumption; and the other is through investment. The Narendra Modi government’s Budget 2020 adopted the second way, and in my view, it was the right way.
The first way, of consumption, would put money in people’s bank accounts via cash transfers (as in the Congress’ proposed NYAY scheme or the BJP’s PM-KISAN scheme before the 2019 Lok Sabha election). People would spend the money, consume goods, cause the demand to increase, which would then set the factories running, lead to more jobs, more spending, and a virtuous cycle would be created that would get us out of the current economic slowdown.
The second way of investment also brings jobs; and jobs put money in peoples’ pockets; people spend, consume goods, factories get running, more jobs are created, and the same virtuous cycle out of the slowdown is formed. I prefer the second way because it creates assets. Budget 2020 promises investment in roads, waterways, pipelines for drinking water, housing, hospitals, etc – a total of Rs 103 lakh crore investment in infrastructure.
Also read: Why Narendra Modi has taken the big and the bang out of the Budget
An opportunity wasted
Finance Minister Nirmala Sitharaman would have done herself a favour, however, by admitting at the outset that the Indian economy was in a crisis, and then explaining how she planned to get us out of it. She has budgeted many fine job-creating initiatives and she would have lifted our spirits had she given even a ballpark calculation of the direct and indirect jobs that these initiatives would create.
Even though budget declaration is not the only occasion to announce reforms, Sitharaman wasted a great opportunity. Reforms take place precisely when there is a crisis — the public is more accepting of the short-term pain that reforms bring. For example, she reminded us of a major agricultural reform that would raise productivity dramatically – contract farming via long-term leasing of the farmer’s land. The Modi government has been advocating this for a while, but the states have been slow to respond. We were waiting to hear about the sort of carrot and stick the Centre intended to offer to make this vital reform happen on the ground. If Sitharaman had announced a few more of the well-known reforms that the BJP believes in, such as of land and labour, it would have fired the country with excitement.
Also read: Budget 2020 fails to meet MGNREGA estimate — and misses a chance to spur rural demand
Expectations exported
My greatest disappointment with Budget 2020 is that it did not announce a reversal of protectionism and the failed, bogus idea of import substitution. The Economic Survey had raised great expectations of an exports-led Budget. It had argued persuasively for the importance of India joining up with global value chains, and even suggested that ‘Make in India’ should be integrated into ‘Assemble in India for the World’. This is the right time to make such a push because global chains are being reset, given China’s problems.
One expected tariffs to come down in Budget 2020; instead they rose on a number of items. Remember, no country has become prosperous by relying on its domestic market. Exports may well be the Modi government’s biggest economic failure, and this partly accounts for its poor performance in job creation. India’s exports have been stagnant for the past seven years compared say to Vietnam, whose exports have grown by 300 per cent in the same period.
Also read: Budget 2020 pays little more than lip service to farmers and agri sector. Just like last year
Still a realistic budget
Budget 2020 will not catalyse a quick recovery. However, it is a prudent and realistic budget. There was hardly any fiscal space to give a big stimulus. The finance minister was sensible not to take risks – the sort of risks we took in the stimulus after the 2008 global financial crisis, which had some nasty after-effects. Overall, Nirmala Sitharaman was prudent in containing expenditure and to budget a modest 10 per cent rise in nominal GDP.
My personal favourites from Budget 2020 are: 1) a commitment to ensure there is no manual cleaning of sewers; 2) amendment in the Companies Act to decriminalise many civil offences that have cost this government the trust of the business class; and 3) a taxpayer’s charter that legally commits the state not to harass the tax payer. If the Modi government can achieve these, it will be a victory.
Gurcharan Das is an author and former CEO of Procter & Gamble, India. Views are personal.
Have been a big admirer of Gurucharan Das (and The Print) but deeply disappointed by the author’s views. First, incentives for investments are a joke given the huge existing underutilized capacities. No one will jump and start putting new plants. Moreover investments in infrastructure have long gestation periods….and high leakages. Second, it makes no difference whether it’s Make or Assemble in India. They are both the same thing. Actually it’s the most regressive program….and would have been a bold step if the FM had announced india joining RCEP…and lowering all import tariffs. Protectionism, pandering to local producers and building walls was what led to 1991….and the bold steps that followed are legion. Third, leasing farmland is a great idea but who will step out and lease? Politicians, land sharks? The Government should make Farming (not just Agriculture) a concurrent subject and amend the Companies Act to create a new category of for profit corporate bodies to enter farming on a large scale….like 1000+ hectare farms with integrated activities from deciding what to produce, how to increase productivity and be driven by market forces. All this while abolishing all farm subsidies. MSPs and stone age bodies like FCI, Central Warehousing Corporation. To boost exports the country needs many steps….a more competitive exchange rate, cheaper credit to name just two. And finally there was nary a word about Tourism! The fastest job and wealth creator. With virtually no history Singapore gets more tourists than India. I was deeply disappointed with the lackluster, timid and unimaginative budget…and now with the author’s comments.
IBA and govt dupping the bank employees on their legitimate wage settlement and revision of pension to the bank retirees on the pretext that the banks are in crisis..and all these bypartite settlements since 1982.. suppressing the bank employees for their legitimate wage revision to those thriving for the economic development of this great country..a 2000 GM retired getting a pension much lesser than a peon of a central government (,nearly half of the peon’s pension) .
.even now the settlement by the bankers are due since nov-2017..and the retirees pension updation..due from..1996..RBI.pensioner got updation of their pension…..
Now Nation as a whole is reeling under economic crisis…and why can’t the salary of mps,MLA,s,ministers which was unanimously increased.by.200 to300%>>be reduced to 25% of their present salary….
Socialist Modi murdabad. Free market capitalism zindabad. Sir i loved your ‘India unbound’ which i read when i was a school kid.
How will 103 lac crores ( $ 1.4 trillion ) get spent on infrastructure in the next five years. As much castles in the air as doubling of farmers’ incomes by 2022. 2. As far as the economic slowdown / collapse is concerned, nothing turns on whether it is “ acknowledged “ or not. Each Indian feels it in her bones. Very painful to admit that in each domain – including the economy and foreign policy – India was doing so much better before 2014.
Really? I thought your analysis to be reasonable. Alas, you too seem to have joined those asking old India (crony capitalism, phone baking, 2G, coal scams, status quoist policies) back. As if pre-2014 India was much better.
Disappointed indeed.
Not to say that India is doing great under Modi but it is definitely doing better. I expect 8%+ GDP growth soon. But the NPA crisis and tepid export growth are big impediments.
There are many projects which are underway but progressing slowly due to dearth of funds.
I do not know what to make of the illustration at the top of this article. And for God’s sake don’t have people like Gurcharan Das writing for you. As it is THE PRINT has got an image of a frivolous publication so soon. I remember SUNDAY OBSERVER was a very satisfying paper when Vinod Mehta started it four decades ago. It started losing its charm when he left it. I had a similar feeling when I saw THE PRINT for the first time, but this paper is already dead!