One singular characteristic distinguishes the Bharatiya Janata Party (BJP) from all other political parties: a perpetual and unflagging state of electioneering. Finance minister Nirmala Sitharaman’s maiden budget speech reinforces this notion. With a historic mandate in hand and the prospect of a five-year uninterrupted rule, because of an effete opposition, the BJP’s budget could have gone in many directions; instead, the tenor unambiguously conveys the imminence and urgency of another election.
The ruling party’s ceaseless campaigning mode has a tell: a predilection for lofty targets. Hence, the budget has become an agglomeration of multiple targets, an opportunity for policy grand-standing and a platform for wishful thinking. Some of the targets and measures are honourable and some are indeed desirable; but many sound like homilies designed to offer a feel-good glow.
A good example is the grandiose idea of India as the world’s third largest economy by 2030 on the basis of a single economic indicator: gross domestic product (GDP). The idea was first revealed in BJP’s election manifesto. The road to the top three rankings requires India’s GDP touching $5 trillion by 2025 and $10 trillion by 2032. In the immediate term, Sitharaman revealed in her budget speech, India is likely to end 2019-20 with a $3 trillion GDP.
Let’s work backwards for a bit. The budget estimate assumes a nominal GDP of ₹211 trillion for FY20, registering a 12% growth over the ₹188.4 trillion estimated for FY19. For the nominal GDP of ₹211 trillion to equal $3 trillion by end-March 2020, the exchange rate has to drift down slightly to ₹70.33 per dollar. Going by the rupee-dollar reference rate of ₹68.75 on budget-day, this assumes a 2.3% depreciation by March 2020. This comes on the back of a sharp appreciation in the rupee during the year. The question here is: What kind of exchange rate assumptions have been baked into the estimates, because that currency depreciation will have some role to play in the nominal growth rate.
The budget once again resurrects persisting doubts over the quality of data used in calculating GDP and other macro variables. Huffy denials and hissy repudiations have not managed to dispel the misgivings. The budget document provides a good example: Budget At A Glance assumes nominal GDP will grow by 12% while the accompanying Macro-Economic Framework Statement 2019-20 assumes it will grow by 11%. A one percentage point difference over the FY19 GDP is ₹1.88 trillion. Also, if growth finally comes in at 11%, it might upset many macro assumptions, especially regarding tax receipts and the fiscal deficit. The confusion is compounded by the finance ministry’s budget division and the Controller General of Accounts reporting divergent data for 2018-19. Data sanctity will matter if the government wishes to raise capital overseas through sovereign bond issues, a perilous undertaking in itself.
The budget speech comprises many other targets, but without any indication of how these will be met. Some examples: 125,000km rural roads over next five years costing ₹80,250 crore; 10,000 new farmer producer organizations; various incubators to develop 75,000 skilled entrepreneurs in agri-rural industry sectors. Many studies are proposed: attracting foreign students under Study in India; increasing cargo volume on the Ganga four-fold in four years; blueprints for gas grid, water grid, i-ways and regional airports. Sitharaman has also promised many policies and measures: a model tenancy law; power sector tariff and structural reforms; foreign direct investment for aviation, select media sectors and insurance; a new education policy; a mission to integrate traditional artisans with global markets, and so on.
But a large part of Sitharaman’s growth and investment estimates are predicated on higher private sector participation. For example, she assumes that private sector will participate in the roll-out of railway infrastructure ( ₹1.5-1.6 trillion every year) or invest in urban metro networks through public-private partnerships. This belief is not followed up with any realistic policy framework that restores the private sector’s confidence, a commodity in severe short supply today. Singing paeans to the private sector doesn’t automatically open up its purse strings.
The economic slowdown is becoming endemic and the capital investment spurt noticed during 2018-19 needs to be sustained primarily through a physical and fiscal nudge. Large-scale capital investments hold the key to achieving the $5-trillion target. And, rather than pushing the envelope, the budget underwhelms by trying to juggle between a liberal revenue target and conservative fiscal deficit red-lines.
Instead, we now have ambitious targets. Nirmala Sitharaman’s penchant for targets predates her current assignment. As commerce minister, she fixed multiple targets; the reality is very few targets were met and no subsequent action-taken reports were published. For example, the 2015-20 foreign trade policy finalized under her watch fixed a goods and services export target of $900-billion by FY20, which now looks remote.
Budgets are no longer drab accounting exercises, but opportunities to showcase the government’s economic policy for the short, medium and long terms. Sitharaman has tried to lay out a road map, listing all the necessary stuff that needs to be done. The problem is, it ends up as a statement of intent, not a plan of action.
Rajrishi Singhal is consulting editor of Mint. His Twitter handle is @rajrishisinghal