Budget For The Year; Plan For The Decade

Our approach to budget making has several fault lines. 

Budget making should be about optimal resource allocation leading to both better and effective outcomes. Allocation is a fuel, and instrument for holistic development. While the allotment is critical, the announcement will be equally important. It’s a signal to the long-term direction. 

The allocation and its spending are of considerable interest and concern to every citizen. The FM owes it to them to create checks and balances, develop a robust framework and ensure the allotment is translated into impact.

Allocation often Delinked to Outcomes, Widening Impact-allotment Gap

This is poor governance. 

Sample this. India has over 1000 poorly designed badly implemented ‘welfare’ schemes. A majority of them can be easily replaced by a more effective JAM enabled direct benefit transfers. 

The FM needs to go beyond allotment. Budget allocation must dovetail a robust framework, address relevant issues and create optimum impact. For example, different sectors even constituents within the same sector have different growth drivers, even different growth cycles. Treating them with the same medicine is akin to curing cancer and heart attack with the same medicine.

A Crux study titled ‘Budget: Allotment vs. Impact’ to understand and ascertain the role of budgetary stimulus, and how they impact the long- term growth drivers has lessons for policymakers. The Crux study across 1,600 industry leaders, policymakers, MSMEs, industry intermediaries and 2,500 households, highlights that tax rate and its treatment is important, but becoming less relevant; providing diminishing returns in relation to the tax forgone. It has already been milked. Similarly ease of doing businesses in the absence of an enabling ecosystem, fails to complete the virtuous growth loop. 

For India to move into the league of developed nations, it needs to ‘value migrate’. This will require several reforms, transformational mind-set changes. Administrative and judicial reforms are less understood, never appreciated. They are the fulcrum and lever for implementation. 

The study highlights that despite the green-shoots, the economy continues to be frail. Surge in infection has brought back uncertainties, weighing heavily on the leisure, travel and entertainment sectors. They are big employers; need help. Similarly downside risks continue for the MSMEs, establishing that the growth engine and job creators are less than resilient.  

Real Economy is Frail

While vaccination and health services delivery will be critical to tackling the immediate risk, much more needs to be done on the real economy.

Employment has lagged behind the GDP growth rate, and is worsening. ‘Jobless’ growth is a reality in the midst of accelerating automation. The agrarian crisis is deepening and is here to stay; a sixth of GDP cannot sustain half the population. Reduction in remittance from the urban to the rural economy is lowering rural demand, accentuating the rural distress. These issues are economic and social, but have political overtones. 

Linking the rural economy to the economic hubs strengthen the pace of growth. Infrastructure creation, rural development and agrarian reforms are long-term growth multipliers. Allotment for Infrastructure projects is important. However, ‘unlocking’ of the stuck, implementing of the delayed and monetising and commercialising the ones completed are equally critical. Delayed or financially ‘overrun’ projects subtract value.

Similarly, the government must add ‘Privatise’ in policy-making lexicon. Disinvestment is not problem solving. It is problem avoiding. Privatisation is not raising, but optimising resources.

Missing Middle

India is years away from becoming (if ever) the ‘factory’ of the world. However, it can capitalise on the ‘assemble and hub’, and several other value migrating high-productivity, growth booster opportunities. The Finance Minister must plough on, alter and modify several frameworks and ‘formalise the economy’. Formalisation has the potential to catalyse the growth of mid-sized organisations to ‘plug’ in, and build an agile, ‘demand-sensing’ support system for the larger organisation.

Micro and small entities need funds; and much more. She needs to ‘release’ these small entities from the unfair and even ‘torturous’ taxation regime, value depreciating regulatory filings and energy sapping ‘inspections’. She must impose a framework that ensures that they are paid on time by the government and its institutions. Why should they pay taxes in advance (GST and have tax deductions). Over 90 per cent of these entities are incapacitated; lack of holistic support has diminished their will and capacity further.  

The Crux study highlights that about 3.5 lakh crore of their bills are ‘stuck and meandering’ in government files. The state machinery has been detrimental to their growth. No wonder that over 95 per cent of them do not grow beyond an entity of 10 people and only one in 1000 blossoms.

Pathway to Value Migration

Agriculture in its present form is not a viable profession. The policymakers must go beyond slogans. ‘Doubling’ farmers’ income hinges on holistic agri-reforms, with a much focused value migration theme. Policies must have farmers at the core, but must go beyond to the entire agri-ecosystem. It hasn’t been so.

India has the demography to be a ‘consumer’; is a consumer led economy. The FM will need to induce a stimulus to create demand; it churns the virtuous growth cycle. It must be her priority. The GST rate rationalising will help. She should optimise, even trim rates, and reduce income taxes especially for the consuming class i.e. middle-upper middle.  

A rupee in the wallet of the ‘consumer’ creates more demand than the same rupee in the vaults of the rich.

Resize, Reshape, & Strengthen Safety Net

India needs to draft a more inclusive social contract, supported and funded by public investment. Despite the criticism she may receive for presenting an ‘election’ budget’, the country owes the deprived section a wide and inclusive ‘care’ economy. It is good economics too.

India needs to invest in growth multipliers like education, health, and equal opportunity. Basic income must get a second look. Similarly, India needs to take care of the oft ignored, largely forgotten urban poor. Women’s   participation in the labour force is empowering. She must filter the noise. 

She must keep an eye on inflation. History is a witness to most governments being voted out in inflationary regimes, even if they have managed high growth.

Growth induces hope and has the potential to trigger a virtuous cycle, promotes inclusive and sustainable development  ‒ even prosperity.