Bluster Budget
B. Yerram Raju
PUBLISHED: 6TH FEB 2022 12:02 AM | UPDATED: 5TH FEB 2022 10:27 PM
Budget leaves these ladies in search of viable options
Usually, the Economic Survey presented a day before the Union Budget is
expected to lay the foundation for a policy direction. It acknowledges the
challenging times for policymaking – this time against the backdrop of the
pandemic impact, especially on the vulnerable sections, fall in consumption in
the medium term and serious supply-side disruptions. There are some half-truths
as well when it said that government expenditure has pushed consumption by 7%
in 2021-22. Even credit flow was tepid till the end of the second quarter of
this fiscal.
The Union government’s debt crossed 59.3% of GDP from 49.1% a year ago.
Recovery of the economy is unlikely to contain fiscal deficit as the major item
of investment is through public debt and less through tax revenue. The Finance
Minister’s Budget speech has little substance to combat either inflation or
inclusivity. It also seemed to ignore several suggestions from the pre-Budget
meetings.
Roads, highways, and railways are dependent on States for making available
the land but the States have not been taken into confidence and several
State-led projects were not supported by the Union government
The Budget has laid, of course, a foundation for large investments in
infrastructure to flow under public-private partnership. But roads, highways
and railways are dependent on States for making available the land, and the
States have not been taken into confidence. Several State-led projects were not
supported by the Union government during the year. The same is the case with
the integration of rivers —Godavari, Krishna and Cauvery.
Missing Mentions
The Budget disappoints on inclusive development and climate change.
Waste management has no incentive and de-carbonisation too was little talked
about. Infrastructure development leads only to temporary employment and in the
context of migratory unemployment that saw people dying on railway platforms
and highways, literally starving during the first Covid-19 lockdown, and their
returning to work, there are no clues. Inflation is least talked about.
The increase in GST (Goods and Services Tax) on which there was wide
applause is more on account of inflation than due to the increase in
productivity going by the drop in IIP. There was no mention of the revival of
manufacturing NPAs in Atma Nirbhar Bharat Abhiyan though the extension of the
guarantee mechanism under CGTMSE (Credit Guarantee Fund Trust for Micro and
Small Enterprises) modification and Sovereign Bond replacing the guarantee for
tender participation in public sector markets are most welcome for MSMEs. It is
the medium enterprises that got the best of the bargain. The agriculture sector
received an apologetic approach — a rise in MSP for wheat and rice accompanied
by a fall in subsidy for fertilizers by Rs 35,000 crore.
Gujarat is Nation!
No wonder the Chief Minister of Telangana in a deservedly hard-hitting
address, highlighted the thinking and approach of the Union government on
several issues, and particularly, those relating to Telangana. For eight years,
ie, since the inception of the State, Rs 42,000 crore is all that was given
under Central schemes. This is far below the disbursements made by the State
under the Rythu Bandhu scheme alone. Jal Shakti, the much-touted scheme of the
Union government, had an allocation of just Rs 60,000 crore while Telangana
spent Rs 40,000 crore on Mission Kakatiya and Mission Bhagiratha. The country
holds 65,000 TMC of water with just around 35,000 TMC utilised. The water
policy of the nation is in a shambles.
When the International Arbitration Centre was officially launched at
Hyderabad and the State government has allotted enough space for it, it is
strange that the Budget announced it as a gift to the GIFT city of Gujarat!
Uniform GST rate for toys, a policy framework for the toy industry and
targeting at least 1% of the market share from China would mean a Rs
10,000-crore opportunity for the MSEs. The Budget has done little
Bihar Special Package, Gujarat Bullet Train, Karnataka Metro,
Bundelkhand Defence Corridor had space but nothing for Telangana. Gujarat is
the only State that received a mention in the allocations to the States as if
Gujarat alone represents the nation!!
Further, the Budget should usually consider a few recommendations of
statutory bodies like the Finance Commissions and the NITI Aayog. This Budget
quietly slipped the recommended allocations to Telangana both under the 14th
and 15th Finance Commissions depriving the legitimate share of the State in the
Union Budget.
Even under the AP State Reorganization Act, 2013, allocations for important
projects like IIM, IIT, IT corridor, Warangal-Hyderabad industrial corridor are
forgotten despite repeated representations from the State. This squint-eyed
approach of the Union government makes one wonder whether we are under a
federal democracy or a unitary rule. This is the reason for K Chandrashekhar
Rao calling for rewriting the Indian Constitution, which has seen more than 120
amendments.
The International Arbitration Centre was officially launched at
Hyderabad but it is strange that the Budget announced it as a gift to the GIFT
city of Gujarat!
Devils that lie in details
Legitimising Crypto
The Budget legitimised the illegal cryptocurrency that has the potential
for killing the monetary stability of the large population by taxing 30% of
those assets. Finance Minister Nirmala Sitharaman said a “digital rupee using
blockchain and other technologies” will be issued by the Reserve Bank of India
in 2022-23. “It will also lead to a more efficient and cheaper currency
management system.”
The RBI coming up with digital currency would add fuel to the fire, as
it may help only the fintechs. This could lead to financial instability in the
days to come. Digital literacy is at a 32% level and general literacy at more
than 45%. There is a cyber-fraud every day draining the hard-earned savings of
lakhs of persons hurting their livelihoods as well.
NEP Neglected
There has been no increase in the allocation for the education sector.
The National Education Policy demands at least 4-5% of allocation for the
education sector but it ended up with less than 2%. The pandemic led to several
uncertainties in education — a mix of institutional and digital education — and
the complicity of some digital institutions awarding MBA degree that has been
rightly discredited by the AICTE.
Poor Health
The health sector, despite all encomiums in her speech for the
remarkable speed and efficiency in delivery of vaccines and improvements in
health infrastructure during the year, did not receive even 6% allocation.
Uncertain Jobs
Employment had a serious setback due to the pandemic. Employment
expectations on account of infrastructure projects under the PPP model will be
project-driven and not stability and security for the persons employed. Fifty
lakh persons to be employed in such projects and services sector would be a
mythical figure. The Budget is hollow here.
Takers for Tourism
Tourism and hospitality sectors received a big-ticket. But all of it
would depend on the people’s confidence in safe travel and safe food. Supply
chains for this sector are in serious problems. The allocations would give a
psychological boost for the sectors and would not materially alter their
fortunes at least for six months after the Omicron settles down without any
further variants hitting the economies around the globe.
Globally, commodity markets indicate a slump and have all portends of
inflation.
Budget quietly slips the recommended allocations to Telangana both under
the 14th and 15th Finance Commissions depriving the legitimate share of the
State in the Union Budget
MSME Sector
The MSME Sector has some things to cheer about but much to mourn.
Extension of ECLGS (Emergency Credit Line Guarantee Scheme) till March 2023 is
welcome but they expect that the banks should extend the facilities to the most
beleaguered micro and small manufacturing enterprises. Rs 6,000 crore over the
next five years for a rating tool for the sector creates more fears as 98% of
enterprises are proprietary and partnerships (family concerns).
The organic databases of G to C, B to B, and B to C would perform as
portals with interlinkage of Udhyam, e-Shram, National Career Service (NCS) and
Aatamanirbhar Skilled Employee Employer Mapping (ASEEM) portals, giving data a
big push. There is no indication whether data itself would provide security
instead of collaterals or guarantees sought by banks. The proposal to initiate
a completely paperless, end-to-end online e-Bill System in all central
ministries will greatly help MSME suppliers as it is to reduce delays in
payments and make the process transparent. It is, however, doubtful whether
this step would boost skilling, re-skilling, up-skilling and promote new
enterprises because of the present levels of digitisation of the MSEs.
Micro and small manufacturers or service providers are sub-contractors
and the FM’s announcement of substituting guarantees demanded by the
governments and PSUs by a surety bond at the hands of insurance companies could
be saving the working capital gap. It is important to see the fine print here
and that the subcontractors get their due share.
A fund with blended capital raised under co-investment model facilitated
through Nabard to finance startups in agriculture and rural enterprises for
farm produce value chain is proposed. Startups will be promoted for Drone
Shakti. It will be the large among the SMEs that may take advantage of this
scheme. It also depends upon the way the co-investment model is structured by
Nabard.
We have not seen much traction of PE/VC investments in manufacturing
MSEs and hope that the Expert Committee proposed would provide sufficient
comfort for the sector’s access to these funds. Extension of tax redemption by
one more year for startups beyond the existing three years would help many
service sector enterprises.
Micro and small manufacturing enterprises were the worst hit during the
pandemic and many have not been able to revive. While speaking about Atma
Nirbhar Bharat Abhiyan, the FM chose to ignore the failure of the subordinate
debt scheme meant to revive the NPAs as all banks have woven a wet cloth around
it. The manufacturing sector, due to severe supply chain disruptions, has grown
only by a modest 1.3% (IIP).
MSEs have sought the lowest cost of capital of which, there was no
mention in the Budget. Uniform GST rate for toys, a policy framework for the
toy industry and targeting at least one per cent of the market share from China
would mean a Rs 10,000 crore opportunity for the MSEs. The sector has been
demanding cash-flow-based working capital assessment from the banks as
recommended by UK Sinha Committee on which there was no word.
The Budget has done little for pushing consumer demand, particularly in
the context of McKinsey estimate of a fall in the retail grocery market by 20%
in the next five years.
If GST has peaked to Rs 1.40 lakh crore, it is because of inflation and
not because of high buoyancy in production and productivity of the industry.
Industry is struggling to stay afloat
Doing Business will be Difficult
To establish a globally competitive business environment for certain
domestic companies, a concessional tax regime of 15% was introduced by the
government for newly incorporated domestic manufacturing companies. The FM
extended the last date for commencement of manufacturing or production under
section 115BAB by one year, ie, from March 31, 2023, to March 31, 2024.
The ‘One Station One Product’ concept is laudable as a souvenir shop
will help generate business and spread awareness about local art and craft.
Although the Budget 2022-23 proposes several initiatives for ‘Ease of
Doing Business’, including modernisation of building byelaws, Unique Land
Parcel Identification Number for IT-based management of land records,
Accelerated Corporate Exit and introduction of new ‘Updated return’ — a
provision to file an Updated Return on payment of additional tax, the cost of
doing business is bound to go up and this will dampen the initiative.
The country needs judicial reforms and several regulatory reforms to
make us highly competitive. The Budget was silent on these. The issue of high
Customs duties and non-tariff barriers on basic raw material, other than steel,
such as copper, aluminum, and polymers also remain largely unaddressed.
Poor, earning less than $1.90 a day as per purchasing power parity of
2011, have nothing to cheer. The Union government seems to be for the rich, of
the rich, and by the rich. While rich by itself is no evil as everyone would
like to be one, the road to such reach should be laid by governments. Some old
tools, like more investment through PPP and disinvestment, to ensure a level
playing field have been dusted off to provide the companies some cheer. The
Budget is deceptive in approach and has less prospects of success.
(The author is an Economist and Risk Management Specialist)
