Not an unwise sleight of hand in this Budget – The Economic Times

Clipped from: https://economictimes.indiatimes.com/news/economy/policy/view-theres-plenty-of-sleight-of-hand-in-sitharamans-budget-like-no-other/articleshow/80885234.cms

Synopsis–Budget 2021 could have done more for boosting public investment in agriculture and increasing government spending beyond what is incurred on repaying FCI’s debts. However, a limited increase in custom duties suggests that an ‘Aatmanirbhar Bharat’ is, after all, not an India closed to trade. We have not recouped our globalising march of the 2000s yet. But lack of further regress must be noted.

To double farmers’ incomes anytime soon, it is essential to boost capital formation. Public investment in agriculture will grow by an impressive 23% over the revised estimates (RE) for FY2021, reaching an outlay of ₹39,000 crore. However, this conceals the fact that there is a 28% drop in RE over the budgetary estimates (BE). Consequently, public investment in agriculture will grow by only ₹1,200 crore over three years, and fall steeply when adjusted for inflation.

Developmental missions of the agriculture ministry, captured under the catch-all budget item, ‘Green Revolution’ (bit.ly/2LItFzB), will receive an outlay of ₹13,408.19 crore for FY2022. As with public investment, although it marks a 28% hike from FY2021’s RE, there is a much smaller 14% increase over the FY2019 figures.

A reduction in spending on two other items deserves greater scrutiny. Allocations for PM Gram Sadak Yojana are lower by ₹414 crore, relative to what was spent in FY2019. And although Finance Minister Nirmala Sitharaman enhanced the agricultural credit target to ₹16.5 lakh crore, she has, in fact, reduced the outlay on interest subsidy by ₹364 crore in FY2022.

In FY2021, the Food Corporation of India (FCI) had accumulated debts worth over ₹3.33 lakh crore, reflecting attempts from governments over the years to hide their food subsidy outlays in the minutiae of budget documents. The ₹3 lakh crore increase in food subsidy in FY2021 (RE) should help settle these dues for the most part, imparting much-needed transparency to budget figures.

A political economist may ask what prompted GoI to finally swallow the bitter pill on off-budget borrowings. It could have something to do with the unprecedented nature of 2020-21 where higher deficit numbers raise fewer eyebrows. However, this rejig also helps provide cover for GoI’s less ambitious spending plans. A higher fiscal deficit on account of blasé accounting reforms may suggest that the Centre has pumped in an enormous stimulus even as naya paisa laid out is actually minimal.

Finally, while Right-of-Centre parties are usually reluctant to fund ‘wasteful’ subsidies, this year was also unique, insofar as governments of all stripes around the world competed on providing more for the needy. A $60 billion food subsidy bill in Budget 2021 couldn’t show up at a better time.

Some have criticised the budget for lacking any focus on employment creation. Last year, there was a huge outcry when GoI slashed MGNREGA’s allocation by over 14%. Critics had the last laugh with the government having to spend ₹1.11 lakh crore on the employment guarantee scheme in the wake of Covid-19 — a 55% hike over FY2020 figures. This year, the allocation stands at ₹73,000 crore — only ₹1,300 crore more than the actual for FY2020 — reflecting GoI’s dismissal of MGNREGA as a tool for sustainable employment generation.

This may be the right strategy. The budget’s infrastructure push will also create jobs — from around 26 million in 2004-05, the number of construction workers jumped to 50 million by 2011-12, making up a tenth of India’s workforce. However, only five million new construction jobs were created between then and 2017-18. The big spurt in capital spending outlined in Budget 2021 — almost 2.5% of GDP against a 1.7% between 2010 and 2019 — may help revive employment growth.

Besides lacking focus on joblessness, Budget 2021 is also being criticised for contributing to rising trade protectionism. According to the World Trade Organisation (WTO), India’s average applied tariff rates rose from 13.5% in 2014 to 17.6% in 2019. This budget raises duties on a number of products including electronic components, agricultural goods, leather and auto parts.

While the Economic Survey 2016-17 made a spirited case for making India a hub of leather footwear manufacturing, Budget 2021 hikes tariffs on importing leather. This will harm the viability of India’s exports, when Bangladesh and Vietnam are emerging as formidable competitors.

However, this year’s duty hikes were significantly less protectionist than 2020’s. Last year, Sitharaman had raised custom duties by 33-50% on about 40 items whose combined import value was over $20 billion. Import tariffs on big-ticket items like toys were tripled from 20% to 60%, with significant hikes laid out for electrical appliances, furniture and footwear.

Budget 2021 could have done more for boosting public investment in agriculture and increasing government spending beyond what is incurred on repaying FCI’s debts. However, a limited increase in custom duties suggests that an ‘Aatmanirbhar Bharat’ is, after all, not an India closed to trade. We have not recouped our globalising march of the 2000s yet. But lack of further regress must be noted.

(The writer is former researcher, Institute for Fiscal Studies, London, UK)
( Originally published on Feb 12, 2021 )

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