Sitharaman's maiden Budget leaves big economic questions unanswered

This was an unremarkable Budget from a government that knows it has time, and will have more opportunity to tweak its finances and its outlook. However, it will disappoint those, including its friends, who were hoping for breakout ideas and fresh vision.

There was some flash and bang over numbers that few Indians will comprehend or can relate to, such as heralding an economy of $5 trillion. There was a welcome soaking of the so-called super rich, who will now pay a 7 per cent surcharge if earning more than Rs 5 crore a year.

But the big economic questions remain unanswered: what path have we taken to transition from a low middle income nation to a middle income nation? How will we reduce inequality in one of the world’s most unequal nations? How do we ensure that median income (currently 50 per cent less than average income) does not continue to lag? How will we resolve the absence of Indian innovation and of scientific dependence and digital colonisation?

It could be argued that these are not questions that are relevant to any one year’s Budget and that is fair. However, the reality is that there doesn’t seem to be any real fora for them. Indeed, these are not questions even the voter is asking. India is an outlier among nations with a liberal constitution in that its politics appears independent of the economy and jobs. We have just come out of an election where the highest unemployment rate in four decades was rewarded with an absolute majority. The other things that European and American elections are fought on — the state provision of quality health care and meaningful education — also seem irrelevant here.

Even the most pressing current matter for the Western democracies, particularly those in Europe, that of climate change and its effect on everyday lives today, is not a political issue here. The adoption of electric vehicles is poor in India because of a lack of consumer choice. 

The electric revolution is happening in California and China and to adopt it, we will have to eliminate duties on the products from there. Today, even the cheapest Tesla will attract over 100 per cent duty. Instead, an income tax deduction for electric vehicle buyers has been offered. How we will get from here to 30 per cent electrification of all vehicles by 2030 (as previously announced by this government) is a mystery.

Absent these questions, the focus of the budget can be turned to other things, like water conservation. We have a Prime Minister charismatic enough to make a movement out of this, just as he has with Swachh Bharat. Or at least as much of a movement as is possible in our parts. He has the supreme ability to make people swallow pain in the perceived larger interest.

The government intends to spend Rs 100 trillion on infrastructure over the next five years. When one deals with very large numbers, some of the perspective is lost. What might become a news item is not really relevant in the larger scheme of things.

The excise and infrastructure cess on diesel will produce by my estimate about Rs 14,000 crore a year. The two rupees extra we will pay on petrol will add up to another Rs 5,000 crore. In an economy of $2 trillion, this will be a little more than $2 billion, that is, a little more than 0.1 per cent. The fact that despite this the government chose to go ahead with the hike indicates a confidence in its ability to sell such measures.

Finally, it is of course a government trained by its leader to push symbolism, some of it quite empty. This morning we were informed by Chief Economic Advisor Krishnamurthy Subramanian that “Sitharaman believes that leather made products are not auspicious for the big occasion, so she avoided the leather bag and took the bahi khata wrapped in the red cloth. This is considered to be auspicious. Also, ditching the briefcase symbolises our departure from the slavery of western thought.” He was speaking of course in English.


Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel