Opposition parties on Monday accused the administration of Prime Minister Narendra Modi of presenting a directionless budget for FY21 and questioned the various fiscal projections during a debate in Parliament, highlighting the government’s limited spending power amid an economic slowdown.
Senior Congress leader P. Chidambaram, who initiated the budget discussion in the Rajya Sabha, accused the government of “living in denial" on the economic problems and for being predisposed towards protectionism and a number of “outdated philosophies". The economy has decelerated for six consecutive quarters, Chidambaram pointed out.
Finance minister Nirmala Sitharaman had on 1 February presented the Union budget for FY21, projecting a slippage in fiscal deficit of 0.5 percentage points of gross domestic product (GDP) from the 3.3% projected earlier for this financial year and a similar deviation for the next fiscal from the 3% projected earlier. The budget scaled down the spending estimate for the current financial year by more than 3% from the ₹27.8 trillion projected earlier, but the government is expected to spend more than projected earlier on asset creation while slashing revenue spending. The budget also sought to shift the tax on distributed dividend from the company to the shareholder and offered lower income-tax rates for individuals who do not seek tax exemptions.
Chidambaram and his party colleague Jairam Ramesh said fear of tax officials was discouraging businesses from investing.
However, Vinay Sahasrabuddhe, a Bharatiya Janta Party (BJP) parliamentarian from Maharashtra, accused the Opposition of fear mongering.
Dola Sen, a Trinamool Congress member of Parliament from West Bengal, said it was unwise to sell profit-making central government entities for short term gains, while Naresh Gujral of the Shiromani Akali Dal said the government should scale up allocations for the rural job guarantee scheme.
Chidambaram highlighted the reduction in spending and questioned the allocations made for FY21. “I don’t believe your numbers. We have an economy perilously close to collapse. It has to be attended to by very competent doctors. In the last few years, we have found that the doctors are not so competent. We are living in denial and we are ignoring the two big elephants in the room. One is rising unemployment and the second is falling consumption," said the finance minister of the United Progressive Alliance (UPA) era.
The obvious solution, he said, is to revive aggregate demand and incentivize investment. “I have found nothing in the budget that will revive the demand. The way to revive demand is to put money in the hands of people, not in the hands of the classes," said Chidambaram. The Congress leader also questioned the wisdom of the corporate tax rate cut announced last September. The move, as expected, has not led to new investments, he said.
Ramesh said the assumptions made in the budget about the next fiscal’s revenue collections were not realistic. He also alleged that the government has not diagnosed the economic ills properly. “The fundamental diagnosis of the ills of the economy was absent throughout the budget speech," he said.
“The most important reason for GDP growth declining is the decline in investment growth. Economic growth comes from investment and investment comes from savings. The most serious problem in India that is not recognized in the budget is the falling savings. I would urge the finance minister to pay attention to the fall in household savings," said Ramesh.
The government should switch from cash-based accounting to accrual-based accounting for the sake of more transparency in its financial statement, he said.
Sitharaman is expected to respond to the budget debate in Parliament on Tuesday before the House breaks for recess.