Finance Minister Nirmala Sitharaman starts on an aspirational note. The two-hour 40-minute long Budget speech, creating a record, could perhaps prove the dictum: ‘if you fail in logic, resort to rhetoric.’ Let me deal with the hopes and aspirations first and with the disappointments later.
The Budget has for the first time addressed the farm sector comprehensively providing end-to-end solutions but leaves no assurance for income in the hands of the farmer. Allied activities get a boost. If a farmer were to hold a few animals in the backyard, a fishpond and small poultry in addition to crop farming or horticulture, he has everything in the Budget to cheer. There is every chance to cross-hold risks among farming and allied activities.
Focus on Farmer
States should follow the intent and modify the Agricultural Marketing laws to make way for the responsible aggregators and technology. Warehousing facilities in agriculture market yards and cold storage facilities would insulate the farmer from fluctuations in return to the farm produce.
The Finance Minister has announced Rs 15 lakh farm credit amidst unwelcoming banker in the rural areas and banks that have learnt the art of showing up in figures that they do not deliver to the intended customers. It is heartening to see the push for Primary Agricultural Credit Societies that were almost forgotten for decades. Nabard too should have been restructured for focused attention on farm credit. She should have forsaken tolerance for not achieving priority sector targets to take the Rural Infrastructure Development Fund (RIDF) window. This is a lost opportunity.
While the erstwhile lost focus on education, health and hygiene has been regained with appropriate allocations and set a new direction through internships in higher education, unless infrastructure for primary education and teaching skills is enhanced, the foundations will remain weak. Introducing internships in higher education has the potential to make education fit the employment bill. We may hope for a correction through the National Education Policy the government is planning to introduce soon.
District Teaching Hospitals and paramedical services planned will sow the seeds for sustainable health interventions. This just marks only a good beginning as the effect can be felt only after five years.
With the measly allocation for the Mahatma Gandhi National Employment Guarantee Scheme (MGNREGS) and not linking it to the farm sector, the Budget left a void. It failed to kindle the appetite for consumption, the trigger for growth. The consumer is not left with much surpluses either for increased investment or consumption. Growth impulses are not generated significantly.
The Micro, Small & Medium Enterprises (MSME) sector has got a new direction with the introduction of sub-ordinated debt or equity funding but it remains to be seen whether the banks that failed them in credit would meet the new equity route and help scaling up process. The Trade Receivables Discounting System (TReDs) and government e-marketplace (GeM) are not new interventions to talk of. Unless all the government departments and PSUs enrol on these platforms, MSME vendors would not get their due. For those moving to the organised way of doing business with just 5% in cash are exempt from audit up to Rs 5 crore turnover.
In the last Budget, the Finance Minister made a reference to the UK Sinha Committee report but skipped it this time. Neither Distressed Asset Fund to ensure that no viable manufacturing MSME downs its shutters, nor Fund of Funds found allocation in the Budget. In a slowdown, it makes a lot of sense to ensure that no viable manufacturing MSME exits so that the workforce engaged therein would not add to the unemployed.
The Economic Survey made a very detailed analysis of the banking in the financial sector. The Finance Minister did not seem much worried over the increase in frauds and poor credit risk of the banks. Although it is heartening to see that no further capital allocation is made cutting into the taxpayer’s purse, it is disappointing to see the absence of reforms in this sector. It would have been most appropriate to reduce government equity in these banks and usher in better governance than now. Bad banking and good economy are not good companions.
Banks, irrespective of their size, in the current status will pull down the growth of the economy. The only solace is to the depositor whose Rs 5 lakh is insured instead of just a lakh of rupees thus far. The NBFCs are empowered to recover their bad debts through the Sarfaesi Act provisions on a par with banks.
Extraordinary push to the digital economy with District Cyber Parks, artificial intelligence, man-machine learning and ITeS in addition to travel and tourism is likely to enhance the contribution of the services sector. Start-up, Stand-Up India and Make in India have not thus far led to an increase in the contribution of the manufacturing sector and this Budget also did not make significant strides to reverse the negative growth. Telangana seemed to have provided inspiration on this count.
The Agriculture sector alone may not reverse the slow growth of the economy. Employment intensity has little scope to increase. Unless 20% credit-GDP ratio is attained with better risk appetite among banks, recovery from slow growth is doubtful.
If both the government and private entities depend on the market for raising the resources as indicated in the Budget, revised estimates of the budgeted revenues and expenditure fall short of growth expectations. The Budget failed to institute a monitoring mechanism for implementation of the ambitious projects. States should be taken into confidence while formulating the Budget as it is the States that should catch up and cooperate for the aspirational goals and ambitious announcements to turn into actions.
The intention of the Finance Minister to keep more money in the hands of the people did not result in compatible actions. Overall on a ten-point scale, the Budget scores a liberal six, more due to comprehensive treatment to the farm sector than other sectors.
(The author is an economist and risk management specialist)