Chidambaram calls budget insipid, says for the economy to double, it doesn’t require PM Modi, FM

It was the day Congress leader P Chidambaram showed why he has a better grip on the numbers than those in the Finance Ministry as he tore into the government’s projections for the economy. He attacked the government for their lack of will to improve the weak economy and called the budget insipid.

He said the Centre was showing people a “pie in the sky” by talking about the goal of growing to a $5 trillion economy by 2020-25. He quipped that as long as the rate of growth is 11-12%, the rate of the economy will continue to double every five or six years. The economy will double, it doesn’t require a FM or PM.

“It is the magic of compounding,” he said, and highlighted that, “any money lender will be able to explain the same. Instead, bold structural reforms are needed because the economy is weak."

“While loans worth ₹5,55,603 crore have been written off for corporates, the same has not been done for farmers, students, micro industries, small industries,” pointed out Chidambaram and added that the finance minister Nirmala Sitharaman only mentioned about the reduction in NPAs by 1 lakh crore.

Beginning his speech with the events in Karnataka and Goa, Chidambaram warned that these episodes would have extremely damaging effect on the economy. He said the Treasury Benches might call it ‘political upmanship’, but foreign investors, rating agencies do not watch the “tamed Indian television channels”. “What they read about political instability will have an effect,” warned the Rajya Sabha MP from Maharashtra.

After appealing to the ruling party to respect democracy, Chidambaram chastised the budget speech stating that this was for the first time that the budget speech did not include the total revenue, total expenditure, fiscal deficit, revenue deficit, additional revenue mobilisation or the tax concessions given to people.

“This budget speech was bereft on any macro-economic data. The budget documents are not accessible to millions of people in the country, so people listening to her speech on radio deserve to know the allocation for defence, women, scheduled castes, minorities, health, MGNREGA and mid-day meals,” observed Chidambaram.

Criticising the Finance Minister’s weak response to the question of GDP in Lok Sabha, Chidambaram said, “When we come to the GDP, we are perplexed. The GDP number for 2019-2020 is the same in both the Budget documents and the Economic Survey. But, the calculation for the GDP in the year that went by is extremely different. According to the Budget document it is ₹1,88,40,731 and according to CAG, it is 1,90,29,000 crore. The issue is the growth projection. According to the budget document, the growth projection is 8%, but if you consider the Centre for Governmental (CGS) numbers, it is only 7%. This is a big difference. This means that the Chief Economic Advisor and the union government cannot agree on the growth percentage for 2020.” The former finance minister quipped that if the government could not agree on the growth percentage, what could the people conclude.

Questioning the government’s structural reforms, the Rajya Sabha MP slammed the Modi government for not bringing about any structural reforms. Structural reforms are measures that change the fabric of an economy, the institutional and regulatory framework in which businesses and people operate. They are designed to ensure the economy is fit and better able to realise its growth potential in a balanced way.

Chidambaram said there have been only 11 structural reforms in the Indian economy in 25 years and bulk of them are attributable to Dr Manmohan Singh. Citing examples he said, abolishment of Licence Raj, removal of Foreign Exchange Regulation Act and exchange control were structural reforms.

Without structural reforms, Chidambaram said the GDP will amble along at 6.5 and this would not be good for the bottom 20% of the people.

Chidambaram underscored the fact that earlier only domestic consumption was improving, but currently even that was sputtering.

The Economic Advisor had stated that investments and exports were the key to improving the economy. As is known, for investment money is required – either through domestic resources or FDI. Chidambaram wanted to what these domestic resources were as the Gross Fixed Capital Formation has been stagnant for three years at 28.5. In 2018-19, the GFCF improved to 29.5, but a few years ago it was 34.5.

Gross fixed capital formation (GFCF), also called "investment", is defined as the acquisition of produced assets (including purchases of second-hand assets), including the production of such assets by producers for their own use, minus disposals.

“The Budget says the domestic savings will increase and will give an impetus to the investments in the country, but the domestic savings are going to remain at 29.5%. So, where is the additional income going to come from to spur investment. There is nothing in the Budget to improve domestic savings or household savings. There is nothing in the budget which will inspire the middle-class to save more. There is nothing to increase savings,” asserted Chidambaram.

“You have taxed long term capital gains and buy back of shares, so where is the incentive for the middle-class to save more. If the household savings don’t improve, then the domestic savings will not rise. If the domestic savings will not rise, then domestic investment will not rise. If domestic investment will not rise, then Gross fixed capital formation will remain at 29.5 or 30. If it remains at 30, how can the country achieve 8% growth,” asked Chidambaram to a downcast-looking Sitharaman.

He even requested Sitharaman to teach him how they expected the GDP to grow if the GFCF and domestic investment were to remain stagnant.

Chidambaram then listed out the errors in the Budget speech:

1. In case of Foreign Direct Investment, the budget speech said the FDI was $64.375 billion, but the FM forgot to mention that it was Gross FDI. The net FDI was only $44 billion. Explaining, Chidambaram said that FDI is controlled by macro-economic factors in the world, but what Indians could control is the domestic investment. But, for that domestic savings must increase.
2. In case of revenues, as against the budget estimates for 2018-19, the revenue loss was 1,60,000 crore. The revenue simply did not come. One of the reasons is the faltering growth. The Budget estimates under the six major taxes – Corporation tax, Income Tax, Customs Tax, Excise Tax, Service Tax and GST- was Rs 22,42,833 crore and what the government collected was Rs 19,67,187. As against the estimate of ₹14,84,406 cr, which was in the interim budget document, the government collected ₹13,16,951 crore. This is a loss of ₹1,60,000 crore.
3. Last year, the income tax collection increased by 7.1% and despite that for the new year the government has projected that the income tax collection would improve by 23.25%.
4. Customs tax was negative by 8.6%, but the projection is +32%. Excise was flat and the projection is 15.5%. Now GST, It increased by 3.38%, and the projection is 45%.

“If you achieve that you will rank will the Olympic pole vaulter. These targets are completely unrealistic projections and targets. If last year you lost 1,60,000 crore, and this year you will lose another 1,60,000 crore, how will you achieve your expenditure goals?” queried Chidambaram.

“Last year the growth was 8.0, 7.0, 6.6 and 5.8. The economy was on a decline. The farm sector grew at 2.9%, the lowest in those five years. Over 10,000 farmers have committed suicide in the last year. This year, in Maharashtra, the state I represent, 800 farmers have committed suicide until June 16 this year,” pointed out Chidambaram.

Index of Industrial Production (IIP) for manufacturing during the last four years of NDA government was 2.8, 4.4, 4.6, 3.5. “This is nowhere near the double-digit growth that is required. In exports, the highest level achieved was $315 billion in March 2014, when UPA was in power. Then for four years the export level did not cross $315 billion, but in the last year, they barely crossed $315 billion,” highlighted Chidambaram

Again, fact-checking government statistics, Chidambaram listed out a few examples:

1. The Finance Minister stated that 50 crore Indians have got health insurance. But, under the central govt scheme only 30 lakh people have got the benefit after hospitalisation.
2. In the retirement pension scheme NPS, the Budget states that 40 crore people will get pensions. But, the first pension payout will come in 2039.
3. The budget states 99% of all villages are covered by sanitation, 5.6 lakh villages are ODF. This means that the kind of toilets being constructed without double soak pit perpetuates the septic tank and manual scavenging. 144 people have died cleaning septic tanks in Tamil Nadu since 1993. Over 88 people have died in India this year. A study by the govt revealed, 23% own, but do not use the toilet. A study by a private agency revealed that 43% toilets are not used or not usable because there is no water.