Despite the controversies of demonetization, the central government has again succeeded in deftly hijacking the minds of Indian citizens through a riveting speech made by Finance Minister Arun Jaitley. The budget seemed to be especially important given third quarter statistics which are filled with drawbacks of the demonetization policy. Thus we had a budget speech completely focused on digitalization of a country where the ‘digital divide’ stubbornly persists. As the budget theme (Transform, Energize, and Clean) attempted to glorify existing conditions, there were unsurprisingly no transformations in the overall economic framework except the expected tax reduction. In the zeal for “energizing”, the budget had clean forgotten the needs of the informal sector including agricultural sector. Even though the government provocatively claimed that it had cleaned up black money, it revealed no data regarding the amount of black money actually mopped up from the market.
Rajiv Kumar, Senior fellow at Centre for Policy Research has explicated the three main principles of this budget. According to him, the budget has primarily concentrated on domestic investment, the chief instruments for this being the reduction of tax and the amount promoted to public capital expenditure. The recent economic survey suggested that the expansion of domestic demand is unavoidable to overcome the drawbacks of demonetization. To counter the downsides of demonetization people had paid out their taxes in advance in December. A drastic tax reduction it is hoped will compel the financial institutions to pay back their ‘whitened’ black moneys. However, as demonetization drastically affected the informal sector which comprises around half of GDP and three-fourths of total employers, a reduction of tax for MSME having a turnover of 50 crores may not provide visible results. Even though the tax was reduced for small scale and medium investors, their main obstacle in terms of the availability of markets and cut- throat competition in terms of import continues unabated. The Finance Minister began his speech by remembering the deprived sections brutally affected by the drawbacks of demonetization. In need of this cause, the government should allocate more government expenditure and investment to directly positively target employment opportunities. For one, it is mandatory to increase the liquidity of cash in market, which will become possible only by an increase in income tax. Despite the swell in public expenditure (21.5 from 20.1 crore), the people are continuing to feel the pinch as the government operates on an assumption of growth by 12.6% in terms of tax. In contrast, the amount of capital expenditure to GDP has reduced to 1.84% from 1.86%.
Rajiv Kumar has also alluded to the important question of employment opportunities created by the budget. The highest allocation towards NREGA is despite tall claims, no impressive figure. An increase of 501 crorer is not enough for the scale of the problem. As per the data, the government can only provide work for 45 days under the newly promoted scheme; thus the words of the Finance Minister ring hollow when he speaks of the “100-day” work scheme under NREGA. Even though funds have increased in NREGA, the allocation towards PMRSY (19000 crore), Sarva Shiksha Abiyan (1300 crore), drinking water (50 crore), social pension (9500 crore) overall remain almost same compared to last year’s allocation. A slight increase (3000) for the agricultural ministry is not a fabulous gain by any means. Further, the Prime Minister Fasal Bima Yogana (9000) and Amritha Program in urban areas have been harshly neglected by budget.
Third, Rajiv Kumar delineates the government’s steps for cleansing the economy of black money. The much-vaunted restriction of currency transactions by political parties to up to 3 lakhs is nothing but a jaw-dropping set of googlies. Here a government will be under scrutiny as it spends 10000 crores for a Lok Sabha election, deviously presenting it as 700 crores to the Election Commission. In fact, as is well known, this funding restriction will affect the real estate sector fundamentally. It will lead to low investment which may engender unemployment in the nation. It will be particularly interesting to see how the government will find out the mysteries of party lockers without having ultra-sophisticated technologies.
Of course on demonetisation Jaitley has repeated the tiresome claim that it has not caused much distress. He claims a growth rate of India as 7.1, while it is well known that this was the rate before demonetization as per the report produced by RBI a month ago. It is believed to be currently between 6 and 6.5, relying on the data produced by the Central Bank of India. Although government decided to confiscate the assets of economic offenders fleeing from the country, it had not given due importance to bad banks as suggested by Economic Survey weeks ago.
Furthermore, the finance minister has cleverly not mentioned any political events happening around the world which would impinge on economic performance – for example the refugee incident in America and privatization in UAE. He has restricted his comments to the reduction of tax, disregarding the future impacts of those tragedies. The implementation of universal banking scheme, and providing minimum money through banks had added fuel to fire in case of informal sector in our country. As Thomas Isaac, the finance minister of Kerala state government stated, the motives of his government to give an amount of 12000 for 40000 lakh people per annum – perhaps a role model for the Central government. As per new findings of International Monetary Fund (IMF), India has lost his stance as the fastest growing economy in the world.
Finally, the words of Minority Affairs Minister, Mukhtar Abbas Naqvi regarding the enlargement of allocation for the minorities by 395 crores feels like a joke as it completely ignores the needs of most minorities including Muslims in India. In brief, the purge of high-valued currency cannot be celebrated until the government reveals the achievements of demonetization. As Jaitley plays the budget game, let our voice seek clarity for the sake of nation.
Muhammed Shafeeque CM is a freelance writer pursuing B.A in Economics from the University of Calicut: firstname.lastname@example.org