As former New York governor Mario Cuomo put it eloquently: “One campaigns in poetry but governs in prose.” In India, campaigning and governance are intertwined. In a formal exercise like presentation of union budget, there is no room for rhetoric like 'Mazboot Desh Ke Liye Mazboot Nagrik'. A strong government does not necessarily make its citizens strong. Citizens become strong when the nation is nonchalantly confident and economy is roaring.
A plain reading reveals that the Indian economy has become precarious with multiple crises. It is facing its worst jobs crisis of last 45 years. As per National Sample Survey Office (NSSO) data for 2017-18, the unemployment rate in the country is 6.1%, the highest in 45 years. The budget has nothing to heal the mauled MSME industry, largest provider of employment next to only agriculture sector. The finance minister has provided an interest subsidy of Rs 350 crore for an existing loan scheme where public sector banks sanction business loans up to Rs 1 crore to 'GST registered' MSME companies in 59 minutes through a portal www.psbloansin59minutes.com. In reality, though in-principle approval is accorded in 59 minutes, the release of loan takes inordinate time. No measures were announced in the Budget to stimulate job growth.
Leave aside India becoming a global manufacturing hub because of ‘Make in India’ campaign, its domestic manufacturing industry itself is gasping for breath. Automobiles, auto ancillary, sugar, capital goods and many other industries are facing headwinds. The growth in the high profile automobile industry has slowed down during the last 12 months. It has in fact recorded negative growth during the last few months. Passenger vehicle sales posted a decline of 21% in May 2019, the steepest drop in 18 years. Top car makers have been forced to close factories temporarily to reduce stocks. As per the data of Federation of Automobile Dealers Associations (FADA), 271 auto dealerships have shut shop in various cities during the last 18 months. The beleaguered auto industry was eagerly looking for some kind of succor from the budget. The budget did not offer any relief to address the lack of demand being faced by traditional automobile industry. Instead, the budget pursues a chimera of electric vehicles (EV). An additional interest of Rs 1,50,000 on loans taken to buy electric vehicles is allowed for tax deduction from one's taxable income. EV charging stations are still a work- in- progress. EV industry is yet to achieve commercial scale production. How many people will avail this additional tax exemption and buy an electric car in the remaining eight months of the year?
On account of contagion of IL&FS collapse and rampant asset-liability mismatch, NBFC industry is facing a huge liquidity crisis. NBFCs are biggest financiers of homes and automobiles. Due to slowdown in sanction of fresh loans by NBFCs, real estate and automobile industries have suffered collateral damage. Budget does not boldly address the liquidity crisis being faced by the small NBFC players. It offers a one time 6-month sovereign guarantees of Rs 10,000 crore for 'loans granted by banks against pooled assets of sound NBFCs'. Bank loans to sound NBFCs do not really require any sovereign guarantees. This measure does not bring any additional liquidity to the suffocating weaker NBFCs.
The export sector continues to languish because of adverse global environment and our own misadventures. Budget just ignores export sector woes.
Banks are saddled with backbreaking bad loans of a mammoth Rs 12 lakh crore. They were able to recover about Rs 1 lakh crore under IBC, but with a huge haircut of 58%. Budget has indeed provided a good amount of Rs 70,000 crore (higher than market expectation of Rs 50,000 crore) for the recapitalization of ailing PSU banks. Only time will tell how much of this amount will be used as growth capital by banks to step up credit.
The bloodbath in the broader stock markets that started during last year has further aggravated. Sensex and NIFTY are standing at high levels because of a handful of large cap stocks like HDFC, HDFC Bank, ICICI Bank, Kotak Bank, RIL, TCS, Adani Port etc. Most of mid and small cap stocks are at multi year lows. Stock markets were expecting the withdrawal of long term capital gains tax, but were disappointed. Extension of lower corporate tax rate of 25% to companies up to Rs 400 crore turnover has not enthused the markets. Any case, profits of such companies are on the decline.
Budget has announced several measures to enhance foreign fund inflows into the country - sovereign borrowings in foreign markets, 100% FDI in Aviation, Media & Insurance sectors, increase in minimum public holding limit from 25% to 35% and FPI investments in REITs. Any incremental foreign fund flows will benefit the Indian economy starved of savings, investments and liquidity. Except for these measures to attract foreign capital, there is no other major stimulus provided to accelerate the economy limping in a slow lane. Indian economy needs stimulus and stimulus. Many economists advocated that India should ignore fiscal deficit targets and provide sufficient stimulus and step up investments. Budget chose to stick to maintain a benign fiscal deficit target of 3.3%, instead of loosening the purse strings. But the fiscal deficit figure itself is largely a managed one through off-balance sheet borrowings, postponement of funds release to schemes, sale of PSU holdings to other PSUs and creative methods like RBI special dividends etc.
(V Venkateswara Rao is a retired corporate professional and a freelance writer.)