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.
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.
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.
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.