Budget: Picking up ideas from the other side of the aisle

The day after the Congress released its election manifesto this April, Prime Minister Narendra Modi said the document had the “stamp of the Muslim League’. Turns out that this document is a source of inspiration for Modi’s first budget in his third term. In an election where the BJP lost its majority, the big message from voters was: “Thank you for the temple, but where is my job?”

Finance Minister Nirmala Sitharaman seems to have taken a serious note of it. She mentioned the word ‘employment’ 24 times in her budget speech, comparable to just thrice last year, and announced specific new ideas for job creation—an employment-linked incentive (ELI) scheme and an internship scheme. Only, both these were ideas mentioned in the Congress’s election manifesto that the Modi government has adopted. Such bipartisan consensus on a critical national issue like employment is laudable and much needed.

The budget was first and foremost an acknowledgement of need to reverse course in economic policy direction. The need for more direct incentives for job creation than indirect ones such as corporate tax cuts, production-linked incentives or chasing headline GDP growth was the first acknowledgement. The second was abandonment of foolhardy economic nationalism and embracing free trade by reducing customs duties and expanding trade with China.

While the ideas of ELI and apprenticeship schemes were taken from the Congress manifesto, they don’t seem to have been adequately understood.

The FM announced the outlay of a whopping Rs 2 lakh crore for employment and skilling schemes over the next five years to apparently skill and provide jobs to 4 crore young Indians. Bombast aside, the budget annexure outlines convoluted and complex details of these schemes that seem designed to scare corporates away rather than lure them to create jobs. The Congress’s design was a simple ELI scheme to provide a standard incentive for every new formal job created by a GST-registered company. Instead, the budget announced a complex structure of a one-month wage subsidy with salary and time constraints that may increase paperwork and compliance burden for companies.

Similarly, the Congress’s apprenticeship scheme was a simple on-the-job, one-year training programme for youth under 25 with any private or government company with an annual turnover of Rs 10 crore or more. Instead, the FM has restricted this to the ‘top 500’ companies, who are expected to take 4,000 interns every year, which is unreasonable and impractical. Again, the idea of an internship or apprenticeship is powerful, but the design seems to be mired in a bureaucratic tangle.

The Modi government continues its capital expenditure push with nearly one-quarter of all expenditure allocated towards building infrastructure. This is the highest in two decades. While infrastructure is a necessary and fruitful pursuit, it runs the risk of crowding out private investment, which has been the case for the last few years. There were no overt attempts to boost consumption demand through direct cash assistance or other such measures. If any, food and fertiliser subsidies have been cut to pay for the new employment schemes, which is a big gamble. Curiously, for all the nationalistic jingoism, defence allocation has also been slightly reduced from the revised estimates for 2023-24.

Taxation, which is the fulcrum of a government’s budget, continues to be regressive, with the only progressive announcement being abolition of the ‘angel tax’ to remove investment barriers for start-ups. Interestingly, this is also another promise from the Congress manifesto the FM has adopted. The direct-indirect tax ratio continues to be 35:65, a polar opposite to other big economies in the world. There was no commitment on simplification of GST, and corporates continue to be showered with incentives and reduced taxes at the expense of the middle class and poor. The budget rightfully increased taxes for stock market transactions to reduce speculative gambling and cool the markets down.

The real concern for the economy is on the external sector, where exports have contracted 3 percent in 2023-24. India cannot grow at a rapid pace without exports growth, as the UPA decade proved. The budget seems to have recognised it and rolled back some customs duties. The Economic Survey also acknowledged the need to embrace trade with China and not be closed. These are welcome course corrections, but perhaps not enough to boost export growth to double digits.

The most avoidable part of the budget was the pandering to the two states of Andhra Pradesh and Bihar, on whose ruling parties’ support the Modi government survives. There were enormous budget allocations for these two states, which will come from the wealthier states such as Maharashtra, Tamil Nadu and Karnataka. When there is already a severe erosion of trust between opposition-ruled states and the Modi government at the Centre, such a brazen display of partiality for political survival is both puerile and risky.

The 10.5 percent nominal GDP growth estimate for next year may seem modest, but one where there is much to be modest about. Ever since poll results, the question that has been swirling in Delhi’s polluted air is whether Modi 3.0 will be a tamed version or an unchanged one. Ignoring the verbal bravado, the first budget of Modi 3.0 has made it abundantly clear that it is the former—one that borrows good ideas from the opposition and bows to allies. We have gone from the bluster of a ‘Congress-mukt Bharat’ to a ‘Congress inspired Bharat’.

(Views are personal)

(pchucky@gmail.com)

Praveen Chakravarty | Chairman, All India Professionals’ Congress

https://www.newindianexpress.com/opinions/2024/Jul/23/picking-up-ideas-from-the-other-side-of-aisle