Budget 2021-22: Like Never Before or Let Down Like Never Before
Dr. Santosh Kumar Mohapatra*
According to Article 112, Constitution of India, 1949, the President shall in respect of every financial year cause to be laid before both the Houses of Parliament a statement of the estimated receipts and expenditure of the Government of India for that year, in this part referred to as the annual financial statement.
The estimates of expenditure embodied in the annual financial statement shall show separately (a) the sums required to meet expenditure described by the condition as expenditure charged upon the Consolidated Fund of India; and, (b) the sums required to meet other expenditure proposed to be made from the Consolidated Fund of India, and shall distinguish expenditure on revenue account from other expenditure….’
The Union budget 2021-22 comes in at a time when the economy has been devastated, decimated by the Corona pandemic-induced recession. The much-talked V-shaped recovery is a prank and the economy is experiencing a K-shaped recovery with the rich getting richer, the financial market booming on one side, while the poor getting impoverished, and the real economy crumbling on the other side.
The ruling dispensation at the Centre including many economists, intellectuals has described India’s union budget 2021-22 as growth-oriented having a multiplier effect. Some dubbed it as a “visionary budget” and hoped to strengthen its flagship “Atmanirbhar Bharat Abhiyan”, put India’s path to a $5 trillion economies and lay the foundation for the coming decade. Even, the IMF has welcomed India’s union budget stating that it has focused on growth. By contrast, opposition dubbed it as pro-corporates, fake, disappointing, visionless, sell India, anti-people, betrayal of masses. Some think budget will put India into insolvency and bankruptcy.
No doubt, the budget has an immense impact on the economy as well as the lives and livelihoods of people. But if a just presentation of a budget is enough to ensure growth, then no country would have experienced dwindling growth or recession. Not just allocation, but implementation, the outcome of the budget including internal, external situation also plays a decisive role.
Since the 1990s, when India embraced liberalization, the Indian economy is increasingly becoming susceptible to vicissitudes of international crisis. The said budget is not the first budget of the present ruling dispensation. The Narendra Modi government has been presenting a budget since 2014 and similar euphoria was created to derive political mileage but all budgets have failed to make any dent in poverty, hunger, unemployment, and inequality.
Before the Corona pandemic struck, the Indian economy was already slowing down and was in a tizzy and tenterhooks. The growth rate had plummeted continuously in eight quarters. It tumbled from 8.3% in 2016-17 to 4% in 2019-20. Unemployment had reached 45-year high of 6.1% in 2017-18, consumer spending was 4-decade low and employment had declined for the first time after independence.
The pandemic triggered a health crisis of gargantuan proportion and subsequent unscientific approach and poorly planned lockdown to tame it exacerbated the already beleaguered economy through supply disruption and demand compression resulting in loss of livelihoods, jobs and worst contraction of growth by (- 7.6% IMF prediction), (-9.6 % by World Bank prediction.) in 2020-21.
Further, growth is not an indicator of the well-being of people; it just reflects the size of the economy which can grow when the rich becomes richer and this is an usual feature of our economy. What is misleading is that illusion and delusion of growth, development is created in such a way that people accept present sufferings gracefully in the hope of a better life in the future. But that never happens. In the long run, everybody is dead.
The government has tried to remain unscathed by attributing unbridled fiscal deficit to the recession and enhanced spending. In a post -Budget interaction with media, to assert that the government has spent more, Finance Minister Nirmala Seetharaman said blatantly “we have spent, we have spent, we have spent”. But the grim reality is that total expenditure as a percentage of GDP is estimated to shrink to 15.63% in 2021-22 from 17.69% in 2020-21. However, if there is any increased expenditure to mitigate the pandemic, simultaneously there must be a cut in other social or welfare expenditures. The total fiscal outgo on the Atmanirbhar Bharat package turns out to be 1% of GDP but not 13 % of GDP as claimed by the Finance Minister.
The major crisis plaguing youth today is a crisis of unemployment. According to the Centre for Monitoring Indian Economy (CMIE), the unemployed count spiked to the highest ever 38.7 million in December 2020 compared to 27.4 million in November. But no attempt is made to create more jobs. It was expected that the budget will provide income supports to the poor especially those who have lost jobs and source of livelihoods due to pandemic. But Finance Minister has ignored this and had catered to the interest of corporates, foreign investors more. There was no attempt to enhance private spending, thereby demand which is responsible for growth contraction.
Since the Indian economy is a saving-oriented economy, it is imperative to enhance financial savings. Hence, the quantum of deduction under section 80C should have increased from Rs 1,50,000 to Rs 2,50,000 to provide savings opportunities to the public at large. The budget should have addressed concerns of people who survive on interest on their savings as the negative real interest rate (the difference between inflation and deposit rate), hurting them.
The standard deduction limit for the middle-income group should have been increased to enhance the disposable income so as to boost spending. Instead, the government preferred to impose a tax on interest incomes on annual EPF and VPF contributions of over Rs 2.5 lakh. Already interest accrued on bank deposits is taxed affecting savers.
It is celebrated that there is no new tax in the Budget. This is wrong. There is no new tax on the rich or corporates but not the masses. But the Budget has proposed Agriculture Infrastructure and Development Cess (AIDC) on over a dozen items which include Rs 2.5 a litre on petrol and Rs 4 a litre in diesel.
This may be replaced by a reduction of a similar amount of Additional Excise Duty (AED) on these fuels. But states do not have any share in resources raised through cesses and surcharges by the Centre. In 2020-21, it was estimated that the Centre will raise revenues worth Rs 3.7 lakh crore through cesses and surcharges from which states will not get single paise. This is not cooperative federalism but hostile federalism.
According to former Finance Minister P Chidambaram, even without the pandemic, the FM would have been proved wrong; with the pandemic, she was proved hopelessly wrong. In 2021-22, the total receipts less borrowing was revised downward from Rs 22,45, 893 crores, tax revenue net to center collapsed from a budgeted estimate of Rs16,35,909 to Rs 13,44,501 in a revised estimate. By contrast, the fiscal deficit climbed from a budgeted estimate of Rs 796337 crore to a whopping Rs 18,48, 656 crores in the revised estimate.
According to the 15th Finance commission, the gap in India’s tax collection, compared to its potential, is worth over 5% of GDP. The Central tax-GDP ratio was 11.22% in 2017-18. But it has declined to 11% in 2018-19, further 9.90% in 2019-20, further 9.74% in 2020-21. It is estimated to be 9.94% in 2021-22. This is much low compared with OECD (33.8%), France (46.1%), US (24.3%), UK (33.5%), Japan (31.4%), Germany (38.2%), China (17.2%) other countries. There is a need to enhance this ratio as many countries have a tax-GDP ratio twice or thrice than that of India.
But by not imposing new taxes or not raising the tax rate on the rich means perpetuating past flawed systems too. Reducing the maximum tax rate in the case of both corporate and income taxpayers as seen in the past tantamount to giving subsidy to rich/corporate indirectly. The much-publicized GST implementation neither curbed tax evasion nor generated more revenues.
The corporate tax rate should have been enhanced too which is the lowest in India. For the first time, corporate taxes will now bring fewer revenues than taxes on individual income. Due to the corporate tax cut in 2019, corporate tax collections fell from Rs 6.21 lakh crore in 2018-19 to Rs 5.56 lakh crore in 2019-20 and now Rs 4.46 lakh crore in 2020-21. While some may genuinely be making losses, others allegedly inflate expenses to reduce income and hence tax burden.
According to Oxfam’s “Inequality Virus Report”, Indian billionaires increased their wealth by 35 % during the lockdown to Rs 3 lakh crore, ranking India after U.S., China, Germany, Russia, and France. Out of these, the rise in fortunes for the top 100 billionaires since the lockdown in March is enough to give every one of the 13.8 crores poorest Indian people a cheque for Rs 94,045 each.
An earlier report published by Oxfam India in January 2020 says the top 1% holds over four times the wealth held by 95. 3 crores, who make up the poorest 70% of India’s population. The reports also said that 10% of Indians own three-fourth wealth of the nation. IMF has advocated for taxing the rich to reduce inequality and spend those resources for development. But the Budget has not addressed this aspect. Wealth tax, inheritance tax could have been imposed to generate more resources.
The budget is not just a statement of income, expenditure but it is a way to raise more resources by taxing rich, affluent people at a higher rate and spend those resources to reduce hunger, poverty, inequality, and creating jobs, and thereby raising the standard of livings of people. But the Budget has failed wretchedly to address those aspects. Indeed, the budget offered no palpable solutions, the strategic idea to the challenges facing the economy except serving only “platitudes and slogans”.
Nothing substantial was being done to address a host of economic problems arising in the aftermath of the pandemic. The budget is designed to transfer national assets to crony capitalists. The problems of low tax-GDP ratio, low tax buoyancy, battered finances, the waning in demand with concomitant unsustainable public debt, lower growth, and poor governance pose a grave threat to our brittle economic recovery unless addressed appropriately.
Before the presentation of the budget, the finance minister promised to present a ‘budget like never before, to strengthen economic revival. Budget 2021-22 was expected to revolve around the philosophy of “growth with a human touch. But she ‘let down like never before. She presented a budget where the rich are exempted from paying their due share of taxes and fiscal maths went awry, Economy is sliding into the economic morass, and the budget is bereft of human touch.
The author is an Odisha-based eminent columnist/economist and social thinker. He can be reached through e-mail at [email protected]
DISCLAIMER: The views expressed in the article are solely those of the author and do not in any way
represent the views of Sambad English.