Response to the Union Budget 2014
by Dr. Shashi Tharoor
Member of Parliament (Lok Sabha) for Thiruvananthapuram, Kerala
16th July, 2014
I would like to join my hon. colleagues in congratulating the Finance Minister on his Budget speech — the longest Budget speech, I think, in living memory. In fact, my dear friend Shri Sudip Bandyopadhyay was actually wrong when he held the two speeches up and said that Shri Chidambaram’s and his were equal in length. Shri Jaitley spoke 16,473 words for nearly two hours and a half, whereas Shri Chidambaram spoke 6,581 words in less than one hour. So, the result is the real inflation here, from 6,000 to 16,000. But still since we know that it has been back-breaking work for the Minister, we should be sympathetic.
After hearing my friend, Shri Jaitley’s views on the UPA’s Budgets over the last five years, I must confess that I am a bit disappointed at his own Budget’s lack of “big, bold ideas”, to cite a phrase he has often used against the UPA. (For the last decade, the BJP has been critical of the UPA’s Budgets). We could have assumed they have a pretty good idea of what they would have offered in our place, some path breaking reforms, some radical departures from the UPA policies and, of course, a few of Prime Minister Modi’s bitter pills. We got none.
Instead we got 29 projects that have been allocated Rs. 100 crore each, like Bollywood box office hits. A Budget cannot be a laundry list of assorted Rs. 100 crore sops for various constituencies. We do understand these are meant to be initial allocations for this year alone and not complete numbers for these projects. But there should be a vision, a clear policy and a direction behind all these programmes. Where is that? These Rs. 100 crore allocations actually raise real questions about the mindset of the Government in this regard. What is the desired overall outcome? How does each Rs. 100 crore serve that objective? For example, a mere Rs. 100 crore for gender security is meaningless when there is not enough outlay for core sovereign functions like law and order, as Dr. Thambidurai pointed out. The hon. Jayant Sinha said that the economy is like a battle ship. But clearly this ship is not yet ready for battle.
But anyway, in keeping with Shri Jaitley’s own preferences when he was in Opposition, let me just stick to the big picture. What are the big questions that we need to ask about the Budget? First, as this is a new Government, does it have an overall vision? Is it clear how it is going to be implemented? Second, have the economy’s problems been diagnosed properly and is there a prescription to fix these remedies? Third, who gains and who loses from this Budget? Fourth, does it live up to the expectations generated by the ruling party’s own statements when it was in Opposition? I am sorry to say that there are serious grounds for disappointment in analyzing the Budget along these questions.
What is the aam admi looking for in this Budget? At the personal level, everyone wants more income and a lower cost of living and at the macro level, policies that will create growth and job opportunities, that would reduce prices, that would widen each Indian’s life prospects. India needs an economy which is efficient, which is competitive, and which at the same time, in an era of growing inequality, is also humane. We have not got that from this Budget. In fact, in his Rajya Sabha speech on the UPA’s 2012 Budget, Shri Jaitley said that “the Budget should increase” – I am quoting him – “the width and the volume of economic activity.” That is a pretty good yardstick. But his own Budget has failed to meet it. Where is the roadmap for national recovery? Any Budget today, if you ask any economist, has to address five issues: fiscal consolidation, that is, a policy aimed at reducing Government deficits and debt accumulation, job creation through boosting manufacturing, increasing savings in order to boost investments, inflation control (price rise) and improving investor sentiment, both domestic and foreign, so that we can have more growth revival. Now, you can throw into this list a few subsidiary points, as some of the Members today have done, like some tax policies, energy policies, human resource development incentives, issues of banking and pensions. We do not have time to address each one of these in detail. But the Finance Minister did, but he did not fully address any.
Take one item, manufacturing, where the hon. Member from the BJP blamed the UPA. To be internationally competitive, India requires policies that will reduce the cost of manufacturing; provide affordable interest rates, improve infrastructure, better trade facilitation, lower cost of power and so on. One of the key reasons for the fall in the GDP growth rate is the slowing down of the Index of Industrial Production. But this Government’s Budget has not addressed any of these, let alone have a coherent set of policies to improve manufacturing. You are not going to get manufacturing just by announcing that you are going to create more factories. All these policies are required to be framed. They are missing.
For a Government that had long deprecated the UPA’s alleged ‘indecisiveness’, there were no concrete decisions on offer on any of these or our country’s other fiscal priorities. For instance, after decrying UPA’s tax policies for years, the hon. Finance Minister announced no decision on introducing the pending Direct Tax Code. Instead, he gave us a series of Committees – an Expenditure Management Commission, a high-level Committee of the CBDT on Retrospective Taxation, another Committee to interact with industry on taxation, a fourth Committee to examine MSMEs. This from a Party that routinely blamed the UPA for delegating decision-making to Groups of Ministers!
Now, I come to the Expenditure Management Commission which they are all so excited about. We have actually heard this story before. The Atal Bihari Vajpayee Government too had an Expenditure Reforms Commission, headed by Shri K.P. Geethakrishnan. Its report, which covered 36 subject areas, was consigned to the archives. As usual, a Commission becomes an excuse for inaction. So, I must ask the Government: how many times must the wheel be re-invented for the NDA engine to start cranking?
No specific measures were announced to reduce inflation. Price rise is the worst kind of tax on the poor and the lower middle-class, the issue that most hurts the aam aadmi, but the Party that rode to power on public resentment of high prices had no inflation-busting solutions to offer. In fact, the cuts in fuel subsidies by about Rs.22,000 crore are going to ensure that the prices of petrol and diesel will keep going up, leading to a cascading impact on other essential commodities; needless to say this will mean a price rise for everybody. We would at least have hoped that the Finance Minister would say that he encourages and supports the Reserve Bank of India to manage interest rate policies that complement the fiscal efforts to reduce inflation. But he has not even addressed this concern.
People below the poverty line have got short shrift in the focus on the so-called “neo middle-class” that we hear about from the BJP. But for aspirational young Indians, there is no indication of where new jobs will come from for the 12 million young people who are entering the employment market in our country each year.
Let me turn briefly (and boringly) to the macro-economic perspectives, because there are some real worries about how the Finance Minister will achieve any fiscal consolidation with his Budget. After accusing the UPA of fudging the numbers in claiming a fiscal deficit of 4.6 per cent, the NDA Budget now accepts those numbers. But it gives no specifics on how it will bring that down to 4.1 per cent, a target it endorsed without cavil. In fact, the Finance Minister based his deficit calculations on a nearly 20 per cent increase in revenue which, in a year of a slow growth period in our lives, is implausible. Some of the Budget numbers strain credulity. Tax revenues are projected well above GDP growth. That defies credibility, given that nominal GDP growth is unlikely to exceed 13 to 14 per cent (9 per cent for inflation plus 5 per cent for real GDP growth). It also defies credibility because already in the first quarter of this fiscal year, 45 per cent of the annual deficit number has already been reached. Despite just having a 6 per cent growth in customs revenues last year, the Government has budgeted a 15 per cent jump in customs revenue this year. On what basis?
The fine print shows that the Government expects Rs.99,000 crore from non-tax revenues. Where is that coming from, if not from selling national assets? Yet, the hon. Finance Minister did not even mention the word “disinvestment” in his speech. Still, disinvestment proceeds for this year are projected to rise from Rs.25,000 crore in 2013-14 to Rs.63,000 crore in 2014-15, much higher than the Interim Budget of Shri Chidambaram. I think in his reply to this debate, the Finance Minister needs to spell out exactly what he will do on disinvestment. Which bits of the family silver is he planning to sell off?
In fact, if I may quote the international rating agency, Moody’s: “The Budget lack details on revenue and expenditure measures to lower the deficit, making it difficult to assess the likelihood that future deficit targets will be met”. I am sure the hon. Member Shri Jayant Sinha can tell us: Will foreign investors listen to Moody’s views or Modi’s views?
Anyway, on the other side of the picture, let us turn to taxes from the aam aadmi’s point of view. As Leader of the Opposition, Arun Jaitley ji had demanded that the IT exemption limit be raised to Rs.5 lakhs, which he has not been able to fulfill as Finance Minister. The very fact that the BJP’s promise of increasing the exemption limit to Rs.5 lakh has resulted in only a 25 per cent increase in the exemption limit, from Rs.2 lakh to Rs.2.50 lakh, has disappointed people across the country. So, we have lost on both sides. As I said, on the macro-economic side, which the Finance Minister, I am sure, would be briefed on later; and the average taxpayer side, who as my colleague pointed out, will only save Rs.416 per month which won’t even cover the increased price of tomatoes, onions, sugar and milk for a family of four today. Similarly, there is no comprehensive roadmap to step up the country’s tax to GDP ratio, which is at a low level of 17 percent. And there are no measures to address the lack of progressivity in the country’s tax structure, which depends on indirect taxes to the extent of two-thirds of our total tax revenue.
In the absence of clear measures, as I had explained, on increasing revenues or tax collection efficiency, how will the NDA manage the fiscal deficit? Won’t there inevitably be cuts in developmental expenditure?
Persistent inflation is, in large part, due to Government borrowings and is the cause of high interest rates that have hurt investment, consumption and job creation. So, clearly, debt must be reduced, even retired altogether. We agree there with the hon. Finance Minister, who said in his speech” “We cannot leave behind a legacy of debt for our future generations.” Yet, this year, in the budget the Government of India will spend more than it did last year, borrow more than it did last year – approximately Rs.69 crore an hour will be borrowed by this government – and spend more on subsidies than it did last year. How is he going to retire the debt?
The Budget did not spell out clear plans for rationalising these subsidies, recapitalizing public sector banks, and did not repeal the retrospective tax amendment that was expected by the investing community. In fact, the Economic Survey, which the Finance Minister himself presented to us the day before the Budget, envisaged reducing direct taxes to the ASEAN level, an FRBM Act with real teeth, food stamps and cash transfers instead of subsidized goods. But Mr. Jaitley has avoided all these reforms.
No wonder the BSE Sensex extended its losing streak to a fifth straight day, during which the blue chip index actually shed over 1,000 points. So, while the Rs.100 crore giveaways make it look a `something for everybody’ budget, the stock market reaction proves that it is really a `not enough for anybody’ budget.
Agriculture, one area in which our country is actually doing quite well, has been woefully neglected by the NDA Budget, in a year where farmers are particularly vulnerable to a bad monsoon. Yes, we have the Rural Youth Entrepreneurship Scheme, which is a good idea, but is Rs.100 crore really going to go very far in a country where 67 per cent of our population is rural and 65 per cent is young? How can you manage to tackle their needs with that kind of money?
I want to address pensions, in addition to addressing some of the needs of poor people. I have got pensioners in my constituency who are trying to live on Rs.500 a month. We have not seen a significant increase there. We have not seen any proposal on employers’ contributions to life and health insurance which could have been made mandatory like the provident fund. But these easy wins have been spurned. Instead they have grand, uneconomic, unviable ideas like the bullet trains – a classic example of the NDA going on the wrong track – the gap between dreams and realities. You can talk all you want about affordable housing and 100 smart cities, but where is the land available to build them?
As my colleague pointed out, the NDA adopted a number of UPA policies which it had earlier criticised and opposed. But on the Goods and Services Tax, which we were very pleased that they have adopted, and which they had blocked – their State Governments had opposed – we are again concerned about the lack of a specific deadline or specific assurances to the States. About various schemes that have already been mentioned, that have actually been renamed, demonstrates, once again that this is not a game-changing Budget but a name-changing Budget.
There is lot more to be said, Mr. Chairman, but I just want to conclude with two last words. I do want to stress that women have done very badly out of this Budget, because we have got some concerns about the failure to address the problems of their security, their education, the balance between the needs and the money allocated to them. Even the National Crime Record Bureau says that there has been a 26 per cent increase in crimes against women, but there has not even been a two per cent increase in the budget allocated to women’s security.
Let me conclude now. Since the Finance Minister did not favour us with the usual couplets we have become used to in budget speeches, I thought I would offer him a couple that are appropriate to this story. The first, with your permission, Mr. Chairman, is this.
“कहाँ तो तै था उजाला हर घर के लिए
कहाँ चिराग़ मयस्सर नहीं शहर के लिए”
“The promise was to illuminate every home. Not even a lamp lights up the city today.” But, we, on this side of the House, are not surprised, Mr. Chairman. After all, as the immortal Ghalib put it,
“तिरे वादे पर जिए हम, तो ये जान झूट जाना
कि ख़ुशी से मर न जाते, अगर ए’तिबार होता”
“I lived by your promise as I knew that it was false. Would not I have died of happiness, if I had believed it to be true?”
I hope that the NDA Government will help us to die of happiness, Mr. Chairman, rather than live in false hope.
Thank you very much.