DANCING TO ‘NAATU NAATU’ in Singapore is surely not out of the scheme of things, considering the city state’s huge diaspora. But when Simon Wong, Singapore’s high commissioner to India, expressed a desire to do so to Union Finance Minister Nirmala Sitharaman recently, he was referring to a very specific wish―with India being the ‘biggest bright spot’ in the world economy, will there be another super-charged budget that will have the markets and global investors dancing away?
Sitharaman did not give in to the temptation to open up. “I am not going to play spoilsport, but it is a matter of truth that the budget will just be a vote-on-account because we will be in election mode.” Her reply, made at the Global Economic Policy Summit in Delhi, set tongues wagging.
Hazaaron Khwaishein Aisi (A thousand wishes like this)
Although Sitharaman tried to tell the world there would be “no spectacular announcement” in the interim budget she will present on February 1, it has not stopped India’s economy and business from looking forward to big-ticket announcements. Called a ‘vote-on-account’ as per British tradition, an interim budget presented by an outgoing government on the eve of elections is aimed at meeting expenditure for a few months till the new government comes in after the polls and issues a budget based on its own policy objectives.
Try telling that to the thousand wishes blooming across the land, from corporate leaders to the MSME (micro, small and medium enterprises) entrepreneur, right down to the common man expecting ‘Amrit Kaal’ right away. Or even to the satraps of the ruling party―an election-eve budget is one of the most effective campaign manifestos one could hope for, and who would ever let go of such an opportunity?
“In light of the impending elections, populist policies may be the main focus of the budget in an attempt to win over voters,” said Subhashish Banerjee, founder of P3 (People, Policy, and Politics), a strategic advisory organisation. “Anticipate changes to policy targeted at major problems like health care, unemployment and economic recovery. The government might launch programmes to encourage the creation of jobs and increase consumer spending. There may also be initiatives to support the health care industry and provide funding for social welfare initiatives.”
RRR
Or rise, rallies and risks. The good news is that India remains a bright spot on the global economic firmament, even as China’s growth slows down and rich western nations stare at possible recession. Every rating agency has been progressively revising upwards the GDP growth rate this financial year as the Indian economy rallied on from strength to strength―latest estimates hover just below the magical 7 per cent figure, with super-optimists feeling it would not be a surprise if even that is surpassed.
This type of rise and rally is not without the risks, though. Sanjay Kumar, partner, Deloitte, along with economist Rumki Majumdar spoke about the four risks the Indian economy could face if one got too carried away: “Inflation, particularly high food prices; the impact of a long drawn out election season [as it promises to be till mid-May]; geopolitical uncertainties with two major wars and the contagion effect on global supply chains; and the diverging demand gap seen since Covid, with rural demand not seeing sustainable growth the way high income segment has.”
Baahubali
All this means that to treat the interim budget as just a stop-gap expense accounting exercise would not be too prudent. Not to forget the need to check all the boxes when it comes to pre-poll posturing. Sure, Prime Minister Narendra Modi’s government is on a strong wicket as things stand. But the BJP election machinery likes to ensure that all bases are covered and go all guns blazing. The budget is too juicy an opportunity to miss. And it would be the perfect opportunity to address the K-shaped conundrum, with the lower middle class and poor never really recovering from the devastation of the pandemic aftermath.
“The agriculture sector and the rural sector itself have not been doing particularly well compared with the urban and business sectors,” said Sethurathnam Ravi, economist and former chairman of the Bombay Stock Exchange. “So I see more tax incentives there. Because that is one area of concern for everybody, as food inflation is rising.”
Helping hand: Prime Minister Narendra Modi with beneficiaries of Ayushman Bharat Yojana in Karnataka | PTI
Looking back at the 2019 elections, one cannot discount the trickle-down effect that direct benefit transfers and social welfare schemes like the Ujjwala Yojana had, which indirectly translated into support for the ruling party. While Modi has spoken against freebies, it really should not come in the way of Sitharaman targeting the crucial rural voter base. “Considering the prime minister’s anti-freebies stand, even the best of direct beneficiary plans will be represented as citizen schemes, which will be drafted not only to clear the government’s stand on benefiting the masses, but it will also generate considerable economic boost among the lower and middle classes,” said Banerjee.
“A democratic government owes to its voters that the last man on the street takes precedence,” said R.D. Sahay, adviser policy, Sharda University. “The common man must have a stake. He needs to find that there is something for him in the system.”
Going hand-in-hand with welfare would be an impetus on job creation and social security, like additional funds for PM Shram Yogi Maandhaan (for old age protection and social security of unorganised workers) and Ayushman Bharat Yojana (public health insurance scheme). “Targeted incentives may stimulate investment, job creation and industrial expansion, supported by increased allocations for skill development, incentives in the informal sector and stable working conditions,” said Rohet Ramesh, director of the talent management and business consulting firm Layam.
Chak de! India
Sitharaman’s stint as finance minister has been characterised by a ‘go big or go home’ spending strategy, with a massive capital expenditure push particularly in the post-Covid years. The aim was to reignite growth, as much as spur investment from the reticent private sector.
Nobody really expects it to be toned down now, with Deloitte’s Kumar and Majumdar flagging how most of it has been concentrated on roads and railways. “On the other hand, over the past two years, spending on urban development and energy as a share of GDP has declined,” they said. This big-ticket spending spree, though helpful in boosting growth and employment, has led to a ballooning fiscal deficit. The Black Swan circumstance of the pandemic was an excuse to let caution to the winds and let the deficit increase, but it could haunt the economy if adequate measures are not taken soon.
The pressing question is whether North Block will go cautious and stick to its target of reducing the fiscal deficit of Rs6.43 lakh crore, which is 6.5 per cent of the GDP, down to 5.9 per cent, at least by the next financial year by splurging less, or whether the temptation of an election year will be too much.
Kal ka Avtar (Tomorrow’s avatar)
Electoral compulsions notwithstanding, Sitharaman is expected to do all that is possible within the ambit of an interim budget to state India’s future forward credentials, especially on the heels of the G20 summit. This could include incentives for clean energy, waste management, pollution control, agriculture technology and logistics.
“As we approach this year’s budget announcement, there is an expectation that the momentum of the green growth initiative from the previous year will strengthen, reflecting a sustainability-first approach,” said Arun Awasthy, president and managing director of Johnson Controls India. There is a win-win in many of this. For example, agriculture logistics, like warehousing and supply chain, could directly contribute to reducing food inflation, while pollution and waste management initiatives could be huge employment generators.
Burden of growth: A vegetable market in Guwahati. High food prices are a major concern for the economy | AP
From EV sops to hydrogen to artificial intelligence, new-age technologies are now too crucial for any budget to ignore. “The overriding theme of the budget should centre on sustainability, innovation and self-sufficiency… and a strategic focus on R&D,” said Nitin Gupta, cofounder and CEO of Attero, a lithium battery recycling firm. “The industry expects measures that will position India as a global leader in the green economy.”
For all the speculation on which sector will get incentives and which areas the budget will focus on, nothing garners the greatest interest like the question that captivates the salaried middle-class come every budget season― whether there will be an upward revision of the personal income tax slabs.
While a nudge towards the newer personal income tax regime―lower rates but with no availing of deductions―is the likely long term scenario, the poll-eve timing means nothing is off the table. “For more dramatic decisions we should probably wait till July,” said Ravi. “Every year, people would get excited over that, but nothing happens. Maybe the government has reserved it for the election year… that is still possible.” Who will dance to ‘Naatu Naatu’ on February 1 remains locked up in Sitharaman’s red bahi-khata pouch for now.