Budget 2017: A golden opportunity missed to revive the economy

The Union Budget for 2017-18 comes in the backdrop of the demonetisation exercise announced by the government on November 8, 2016. The data released by the Central Statistical Office (CSO) has already indicated a slowdown in the economy, with decline in private investment and slowdown in non-food credit growth. The CSO data, incidentally, does not take into account the impact of demonetisation in November. Clearly, the economy was showing signs of slowing down even without the demonetisation impact.

While the exact impact of demonetisation is not yet clear, there is a consensus that the growth rate of the economy will slow down. Even the credit rating agencies concur. However, most of these figures are still an underestimate because of the lack of clarity of the impact of demonetisation on the informal sector. But it is clear from several surveys and anecdotal stories that the impact has been severe and is going to last longer than expected. Given the nature of external and internal uncertainty highlighted by the Economic Survey, this budget was expected to provide a direction to the economy.

In this context, the budget was not only expected to boost the economy but also provide relief to a large majority of people in the informal sector and agriculture who have suffered due to demonetisation. Unfortunately, based on the budget speech, there is neither any attempt to do any of these stated objectives nor does the budget provide any signal of the intent of the government to do anything substantial in the short to medium term.

The biggest loser in this context is the agricultural sector, where the budget speech continues to emphasise existing schemes but fails to give any indication of increased spending by the government. For farmers suffering from debt and declining income in agriculture, the promise of increase in credit is not just meaningless but also a further push towards debt if there are no supporting measures to improve incomes of farmers.

This is also true for the informal sector. It is now clear that the extent of job losses in the informal sector after demonetisation were pushing migrant workers to rural areas. The increase in MGNREGA spending for next year is less than the actual spending this year so far with two more months to go. It is likely that the expenditure on MGNREGA this year would be higher than ₹48,000 crore allocated. This, despite the fact that the demand for MGNREGA work is expected to be high but also wages would have to increase to cover the decline in income. The amount is barely enough to cover the amount of work that was done this year.

The government has also reneged back on its promise to increase spending on social sector. While there is no mention of old age pension, widow pension and disabled pension, the amount for which has remained stagnant at ₹200 per month since 2006, the promise of extending the coverage also did not find any mention. Similar is the case of the National Food security Act which is yet to be fully implemented even after three years of it getting passed by Parliament.

However, the government did act—even though partially—on its promise of curbing black money. The reform on political financing was a much needed one but there is not much otherwise. Despite all the data presented on tax compliance and the low tax base, the fact remains that the tax-GDP ratio has hardly been increasing. Clearly, the plethora of tax exemptions given to the corporate sector has been untouched under pressure. This was a promise made in the last budget and it was time to walk the talk.

This budget has missed a golden opportunity to revive the economy, given that this was the Finance Minister’s fourth budget. While the expenditure certainly reflects the callous attitude of the government to the nature of problems that the economy faces, the sad part is that this budget also fails in providing direction to the economy at this crucial juncture.

Himanshu is Associate Professor at the Centre for Economic Studies and Planning School of Social Sciences, Jawaharlal Nehru University, Delhi