Perils of a post-pandemic Budget

Chennai

The first full time female finance minister shall rise to present her hattrick budget on February 1 under the shadow of an unprecedented health crisis which has affected much of the globe and is likely set our economy back by anything between 7.7% and 10% in the year to March 2021. Even when Dr RK Shanmukham Chetty presented the first budget of the independent nation in the aftermath of the partition and the communal carnage that followed it, the magnitude of the crisis was perhaps not as big.

While India has bucked the death and the infection rate that has gripped most of the West, its lockdown strategy and the consequent impact on the unorganised sector and migrant workers has left scars that may take quite some time to recover. Even before the pandemic struck in February 2020, the economy had considerably slowed due to systemic issues like banks over burdened with bad debts and a MSME sector that was hobbled by the demonetisation and a poorly structured GST.

While the agriculture sector redeemed itself with a decent growth thereby preventing a bigger crisis at rural level, the number of people thrown out of jobs due to lockdown has left a major problem for the FM to solve as millions have lost their earning potential. The budget has to come up with out-of-the-box schemes to help the jobless poor and the tiny and small sectors. Any attempt to please all ends up pleasing none. Hence, the FM will do well to acknowledge the wide spread crisis and transparently list out the problems but admit that everything cannot be solved at one go and thereby use her discretion to attend to the most critical. Besides the livelihood of the poor and the growing disparity in income levels, the economy has three major issues to deal with. The first is the banking crisis which has over the last few years taken monstrous proportions and seem to lack any viable solution. The NPA of public sector banks has reached a level that puts the entire financial system at risk and the talk of a bad bank as a rescue plan seems to lack precision of how the missing capital will be replaced.

Secondly, the GST which marked a previously unheralded chapter in cooperative federalism is seen a captive to various sectional interests affecting its efficiency and becoming a major hindrance in ease of doing business.

Finally, the ‘Atmanirbhar Bharath,’ high on ideals of self-reliance has effectively setback the reforms of 1991 that reduced import duties to make Indian industry globally competitive that helped increase our exports. Added to these the kerfuffle of farmers’ agitation against what is widely believed as good reforms poorly packaged fills the to do list of the government for the coming twelve months and highlights the need for a consultative approach to putting the economy back on track.

To close the comments, Nani Palkhivala, whose talks on the budget changed the way budgets were understood by the experts and lay public, said in his last speech on the 1995-96 budget “we mistake every change for progress and consider every amendment an improvement.” He also recommended doing away with annual budget and move towards a biennial budget. The FM will do well to bear this advice in her attempt to reform the economy.

— The author is a financial expert