The jumbo project begins as finance minister Nirmala Sitharaman takes the first steps to propel India into the league of $5 trillion economies
Sitharaman’s debut effort was also cognizant of the pressing ground realities; problems, which, if ignored, could balloon into a crisis
In the end, the debut budget of Nirmala Sitharaman and also the first of the 17th Lok Sabha matched initial expectations. Like the previous efforts of the National Democratic Alliance (NDA), it was bereft of the fancy flourishes that play to the galleries in Delhi and Mumbai and have rarely translated into follow-up policy action. Instead, it was a classic from the Bharatiya Janata Party-led NDA playbook, which gives Bharat centre stage. Moreover, it implicitly incorporates the “nudge" economy as its underlying strategy. Here are five takeaways.
1) As an economic document and in what should be a surprise to pundits who were batting for a countercyclical stimulus, the Union budget stuck to the dharma of fiscal restraint. Not only did it not succumb to temptation in what is fiscally a very difficult year, but it also actually committed to lower the fiscal deficit (or gross borrowings of the government). One may quibble with the underlying assumptions, some of which potentially err on the side of optimism by setting ambitious targets for tax collections and non-tax receipts (especially with respect to realizing the over ₹1 trillion disinvestment target in the next eight months) and projecting a modest growth in expenditure of around 13% despite taking on additional spending under its various social welfare programmes and packages to alleviate farm distress—the allocations for agriculture are projected to grow by a staggering 75% this fiscal.
2) Typical of a Modi-era Union budget, the Sitharaman budget had its usual fare of out-of-the-box ideas. The standout one was the paradigm shift undertaken in the financing of the Union budget. Part of the fiscal deficit will be funded through government borrowings from abroad. The underlying idea to dollarize the fiscal deficit is to avoid crowding out private capital from the domestic markets and at the same time avail of the low interest rates prevailing abroad thanks to the glut of money.
3) The budget also reflected the certitude of thought that has prevailed in this government, most apparent in the move to push through the demonetization of high-value currency notes. Similarly, it ruled unequivocally in favour of electric vehicles and, in the process, underlined its willingness to walk the talk on a green economy. And this, despite the heartburn it will cause to automobile lobbyists, who were batting for combustion engines, or at the least delay the roll-out of EVs.
4) Interestingly, Sitharaman’s debut effort was also cognizant of the pressing ground realities; problems, which, if ignored, could balloon into a crisis. In this context, it was significant that the Union budget threw a lifeline to ailing non-banking financial companies (NBFCs). Not only will it provide the much-needed liquidity, it will also prevent the present crisis from degenerating into a contagion.
5) Finally, Sitharaman’s budget got the optics spot on. By making Bharat the central focus, it has been able to stick to its mantra of being pro-poor and pro-business. The last time it showcased its pro-business credentials with its push for a new land acquisition law, it was accused of being a “suit-boot sarkar". Her carefully crafted 127-minute budget speech ensured that even the handouts to corporate India—like the increase in customs tariffs to protect domestic industry or the lifeline to NBFCs—were carefully balanced: Keeping with the PM’s summation of India being made up of two classes—the poor and those who help the poor—Sitharaman targeted the top 1% with fresh direct tax cesses; consequently, high income earners, especially those with income over ₹5 crore will now pay a maximum marginal tax of 42.74%. The message to the rich is clear: it is time to pay back to the country, which gave them so much.