Budget 2019: A Ledger For The Year or Modi 2.0’s Vision Document?

Decoding the signals send by the maiden budget of finance minister Nirmala Sitharaman.

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The first Budget of Modi government 2.0 is now being dubbed as Nirmala Sitharaman’s ‘bahi khata’ (ledger). Every expert is trying to analyse it in their own way. Swaminathan Iyer has called it ‘an unexciting and incremental budget.’ On the other hand, Anand Mahindra has used a cricket analogy and said that ‘there were no fours or sixes hit in the Budget but the government looked in the mood of taking singles and doubles.’

Uday Kotak called it a ‘path-breaking budget for New India’ and on the other hand, former finance minister during UPA government and an economist himself, P Chidambaram termed it as ‘an opaque budget.’ Even the share markets didn’t seem impressed by the budget with Sensex dropping almost 400 points and Nifty losing 135 points.

Budget is a Vision Document: Experts

A lot of experts are calling this budget a vision document because it lacks accounting, numbers and figures.

A summary of the budget is that the government has understood that domestic investors and businessmen are not enough to fuel the economy’s growth. Now, there can be two solutions to this predicament. First, through government expenditure and second, through overseas capital.

The government has been decided it will take loans in foreign currency. Now this could be a risky bet because it is difficult to estimate what will be the exchange rate when India will have to pay back these loans. Value of Dollar has strengthened by 18-20 percent as compared to Rupee over the last five years. However, the government is of the opinion that by the time India is expected to payback these loans, its economy would have become much larger.

The Target of $5 Trillion Economy

The government has set a target of achieving $5 trillion economy over the next five years. But, they are not hopeful about generating this revenue via exports. Hence, they have decided to either stop the non-essential imports or make them more expensive. For example, increasing customs duty on import of gold or books.

A government with a mandate of 303 seats in the Lok Sabha has decided to drive the economy by prioritising government expenditure which will focus on village, poor, farmers, women, youth and job creation. Through this they are sending a political message, one of being anti-rich and pro-poor.

A few critics believe that capital investment needed to achieve economic growth has not been given proper attention in this budget statement. At the same time, the government has not given enough attention to issues of land, labour and capital investment.

Taxing the Rich Mere Political Symbolism?

Taxing the super rich might send a positive political signal but this symbolism will end up hurting a very important sector of the country. The message will be that the Indian government is not concerned about big businessmen in the country which means they might start looking for opportunities in other countries.

A phrase called ‘behavioural economics’, which was used quite often in this year’s economic survey, can be used to explain another consequence of this move. Take this example, increasing the cost on gold sounds good, it is anti-rich policy, but at the same time, it increases the smuggling of gold.

Over the last few years, data obtained from customs department has shown us that the incidents of gold smuggling have increased. This will give birth to ‘negative behaviour.’

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