Editorial

Published: Dec 29, 2021
Updated: Dec 29, 2021

Capex rich, revenue poor

Like a whiff of cool breeze on a sultry mid-summer afternoon, the Union budget presented by Finance Minister Nirmala Sitharaman has come as a soothing, pleasant and heartwarming surprise. It has come at a time when the country’s economy is reeling under the after-effects of the Covid-19 pandemic-induced lockdown. Appropriately, the Centre has loosened its purse strings with outlays of around Rs 2 lakh crore on healthcare, Rs 35,000 crore for Covid-19 vaccines, and Rs 1.10 lakh crore for railway infrastructure. In a pleasant surprise, the FM did not impose any new taxes — with the exception of an agri-cess of Rs 2.5 per litre on petrol and Rs 4 on diesel, and a 100% impost on alcoholic beverages and 30% on kabuli chana, pulses and edible oils.

People who were fearing the imposition of a Covid cess, a super-rich tax, a capital gains tax, a dividend tax, etc. could not believe that the budget had spared the public such taxes. On the other hand, the FM scrapped income tax for senior citizens (under certain conditions) and said, among other things, that new rules would be notified for removal of double taxation for NRIs and a reduction in the time limit for tax assessments among other measures.

However, such a huge budgetary outlay, in the absence of commensurate raising of revenues, can have a serious impact on the country’s finances. A massive capital-intensive budget in the face of a revenue deficit means that the country will have to be dependent on borrowings. This kind of balance sheet will lead to a spurt in the deficit-expenditure ratio to 48.21 per cent. This clearly shows that India has abandoned fiscal restraint as it prepares to step up capital investment to support a pandemic-battered economy. In order to take care of the deficit, PSUs will be divested, and there will be asset monetisation through operating public infrastructure assets and additional borrowings. Such a policy is bound to add to the price spiral and add to the woes of the low- and middle-income groups.

It is unfortunate that the government has decided to go for disinvestment of as many 23 PSU enterprises, some of which are real jewels. It is not in the interest of the country to sell off the family silver to finance its capital expenditure. The list of PSUs to be disinvested included highly respected, well-managed companies with high growth potential like BPCL, BEML, SCI, Concor, Engineering Projects (India), Bharat Pumps and Compressors, the steel plant of NMDC, and Hindustan Antibiotics.

The government has taken a politically adventurous step here of allocating huge amounts for national highways and infrastructure corridors in the poll-bound states of West Bengal, Assam, Tamil Nadu and Kerala – needless to say, with an eye on electoral dividends for the ruling party at the Centre. This is unethical and unpalatable, and distances the country’s budgetary policy from financial prudence and the principles of good corporate (in this case, ‘government’) governance.

The government at the Centre has been known for its ‘Tughlaqi’ decisions like scrapping the Planning Commission, doing away with a development finance institution like IDBI, and demonetisation of high-value currency notes, and seems to be resorting to the same brand of unilateralism. Though the budget is supposed to be an annual exercise, actually, the FM’s budget for 2021-22 looks like it has been framed for implementing over the next 5 to 6 years. Ironical, considering that the same government has scrapped the Planning Commission. Likewise, the FM has announced setting up of a development finance agency to finance long- term projects. In that case, what was the need to scrap IDBI?

Of course, many other proposals in the budget are highly commendable. But the milliondollar question is: Will these proposals be implemented effectively? This government has not been seen as serious about properly implementing economic policies. If the budget proposals are not properly and effectively implemented, they will lose all their attractiveness in the eyes of experts and the common man.