KAMAL MITRA CHENOY | 1 FEBRUARY, 2017
NEW DELHI: Finance Minister Arun Jaitley had a tough job to produce a post demonetisation Budget with the critical State Assembly elections around the corner.
The Finance Minister had to put a positive spin on a widely criticised politico-economic policy. He praised demonetisation as a "bold and decisive measure." He claimed that the IMF judged India as "the fastest growing economy.” Although that statement by IMF was made before demonetisation. By citing the IMF the FM is throwing himself over to a reiteration of sharp criticism by The Economist, Forbes magazine, The New York Times, The Times (London), and many economists including Lawrence Summers (Harvard), Kaushik Basu (Chief Economist, The World Bank), Bengt Holstrom, (Nobel laureate in Economics, 2016), among others.
Jaitley praised the note ban for the "war against black money," fighting terrorism and eradicating corruption. The FM claimed that the note ban had "strong support" "thanks to the people." Many economists believe that the note ban has been uniformly disliked. But equally important, is the shift of the NDA economic discourse to a "digital economy," or "cashless" economy. In fact, the FM hailed the "huge" shift towards "digitalisation." The Budget claims that the note ban would lead to long term benefits. This statement is contradictory. If there are long term benefits of the note ban, it should have a positive long term economic impact.
A more serious problem is the problem of the card machines of which a few lakh only will be provided. That's certainly nowhere enough to encourage the activity of card machines and credit/debit cards throughout a proposed digital (earlier cashless) economy. There are other hitches like the large number of non-24/7 electricity villages and urban groups. Mobile phones and other such instruments require recharging. After all, the line of "plastic" cards has to culminate in cash money which has to be paid in full. Also this digital economy can fall prey to hackers.
In the crucially important MGNREGA policy for the rural poor, ₹48,000 crore has been allocated. The FM has stated that this is the highest allocation so far. But the enduring problem in this policy has been, since the UPA 1, that monthly payments tend to come late. The rural poor have limited staying capacity. If their wages do not come in time, they leave to go in search of other work, and lose a month's wages. There have been demands by activists and economists to increase the year's wages to 150 days per family, rather than the existing 100 days. Unfortunately, the FM has not responded to this legitimate demand, which would require Cabinet approval.
The NDA line of shifting from an "informal" to "formal" economy is an even more disastrous policy. The informal sector, which is cash intensive, is a great employment generating sector. Craftsmen, including carpenters, shoe smiths, welders, etc are all part of the informal economy. No matter what the FM thinks, no one can transport a sector of the 21st century to the 22nd century. This is another instance of ill conceived quasi-futuristic planning.
This is also reflected in the Budget reiteration of the end of the necessity of separating Plan and non-Plan expenditures and outlays. This idea was pioneered by former Prime Minister Manmohan Singh. But the NDA doesn't believe in planning, even less than the UPA. This is a rocky transition to the market economy.
The FM announced that the Foreign Investment Promotion Board which was set up as early as 1991, was going to be abolished. Now there will be no guidelines for the promotion of foreign investment. Corporates will make their own investment decisions. They will find that many developed countries are more interested in developing their own economies and technologies. Some broad guidelines are useful to ensure that the latest technology is imported, that repetitive imports are avoided, etc.
There are lots of targets. For rural electrification some ₹19,000 crore are allotted. It is intended that by 2018 there will be 100 per cent rural electrification. No detailed survey has been cited for the power sources that will energise such a wide network of electrical grids. Even today, large urban areas don't get 24x7 electricity. This problem is even more acute in rural areas. A law is to be passed to "monetise" i.g. privatise airports' lands. But the long term value of this valuable land would be much more than a one time sale. This is the whole problem of this kind of privatisation.
For the poor the FM has earmarked a very large sum of ₹98 lakh crores. This is important since agriculture has grown by a slow 4.8% in this last financial year. The Niti Aayog and other bodies, will in collaboration with NABARD, work out initiatives to meet the rural and agricultural objectives. Interestingly, on initiatives on education, the FM priorities science education. In the market economy, economics and commerce are also very important. The FM himself did a B.Com.
The Budget earmarks two states for two new AIIMS, one in Jharkhand which is a boon. The second AIIMS is kept for Gujarat. Unlike Jharkhand, Gujarat is a prosperous State. It would have been better to locate the second AIIMS in another backward state. This is one of the outcomes of lack of planning. Or just political expediency.
This Budget is one of promises. Not surprising given the political atmosphere currently. A digital economy is unlikely in a cash based India. A collection of promises with little analysis of how targets of a market economy can be met, and even less analysis of the long term effects on the economy, may lead to severe disappointments.