The budget missed an opportunity to fix the economy, which is reeling under an unprecedented slowdown, with all indices pointing towards a recession.
This was one of the much-anticipated budget, given that the country is facing a crisis and the economy spiralling down. With the tax bonuses and incentives to the ‘wealth creators’ or corporates failing to pull the economy, it was expected that this time that the Minister would concentrate on increasing the purchasing capacity of the people and concentrate more on social sectors that would help in increasing jobs, betting health, housing and education. While the speech stated with the promise of doing just that, it limited to being one of just aspirations, without actually giving a clear road map to economic development.
The need of the hour was to develop concrete and long term solutions that would help recover the economy. The government could have taken measures to increase the spending capacity of the people, strengthen the informal sector, which constitutes 90% of India’s workforce, strengthen the public sector which is the largest employer and which contributes the maximum to the economy, address the crisis facing the banking sector, put a check on privatisation of key sectors like education and health and addressed the farm sector crisis, which has grown over the past many years, leading to suicides of thousands of farmers.
The budget pushed for privatisation through the failed PPP model in health, education, power and other sectors, pushed ahead the agenda of international financial institutions like World Bank ease of doing business, reforms in power sector, taxation, and in the name of respecting wealth creators, showered sops for the corporate sector, while the real wealth creators – the unorganised sector and the farmers – are left out.
The budget apart from IFI’s agenda on taxes also takes more in terms of propagating the PPP model in practically all public service sectors. From re-development projects and operation of 150 passenger trains through PPP mode, to foreign direct investment in education, PPP in agriculture, smart cities and hospitals. This model of public private partnership has been a complete failure in India. Even the World Bank funded projects with the PPP model in water sector and power generation have been complete failures with heavy losses to the public sector and consumers. One of the significant failures of the PPP model has been the Ultra Mega Power Projects.
Death of Public Sector
While recommending the banks to raise capital from the market by selling their holdings, there was no recapitalization to the banks. The Minister only made an empty promise that the banks will be infused with capital when necessary. Another shocking announcement was the divestment of LIC by selling government shares through IPO, to raise funds. LIC is the largest public share company with funds worth Rs. 31 lac crores. One might recall that LIC was forced to bail out a failing IDBI for over Rs.13,000 crore and further LIC and SBI were made to bailout IL&FS. Now the government is planning to sell its holdings in LIC and IDBI to raise funds. The budget while touting its reformatory and structural changes to improve the banking sector, did not mention if these policies had any effect or not. Among the many glaring omission was the NPA figures and its recovery or any figures related to recovery through IBC and write – offs.
Despite large scale opposition to merger of banks by all banking unions and PSUs the finance minister only seems to be pushing this government agenda. It is more evident that the Banks that have been merged have suffered serious losses both monetary and human resource. We also saw the same with merger of Air India (which is now going for sale in the coming months).
The Minister did not divulge the utilization of the funds from RBI which the Government has been periodically taking. It has now been the third consecutive year that the government has taken money from RBI surplus, without giving an account of how and where this fund has been utilized till today, despite repeatedly claiming it will do so.
Deposit Insurance Increase a prelude to FSDR?
Deposit insurance coverage has been raised to Rs 5 lac from current Rs 1 lac, though the demand has been of Rs 15 lac keeping in mind the global standards. Safeguarding deposits has been a major demand from the people since the panic created by the infamous FRDI Bill (which the govt. had to withdraw). In the name of protecting deposits, the finance minister has now issued a nominal increase, which in itself is both insufficient and does not address the issue of people losing their savings. At the same time, this increase not only strengthens the possibility of the introduction of FSDR Bill, which will again target the banking sector.
The government has allotted Rs. 22,000 crores for power and the renewable energy sector, Rs. 4400 crores allotted to commitments to obliging with the Paris agreement principles to address the issues of climate change to reduce carbon footprint.
The finance minister said that the old thermal power plants whose emission levels are over the threshold are to be shut down and the land thus vacated to be utilized for alternative purposes. However, she did not say anything about the mountain of stressed assets and non-performing assets in the power generation sector during her speech. Also not a word on the thermal power projects under construction which are going to be functional soon. The latest CEA status shows that none of the thermal plants has met air pollution norms of Dec 2015 with a deadline of Dec 2019, raising doubts whether the Minister serious about what she is saying.
The Finance Minister during her speech announced a Scheme for 20 lac farmers to set up solar pumps, but she did not make any mention of any financial support that the farmers require to set up these solar pumps. Further, she has mentioned setting up of solar power units on barren lands and budget to boost buying power. Instead of helping farmers improve productivity within barren land, the finance minister is proposing to turn over these land tracts for solar power plants. It is then bound to create food crisis both for livestock as well as for communities residing around these land.
While the budget is proposed to set up large solar capacity alongside railway tracks in the land owned by railways, there is neither an indication nor allocation for decentralized renewable energy accessible for people. The monopoly of large corporations is going to be the new thumb rule in the renewable energy sector in place of thermal power plants.
Finance Minister in her budget speech proposed to address the financial distress in DISCOMs companies. Two major steps taken in this regard are first to replace the old meter with prepaid smart meters across India in the next three years and second is to reform or privatize the distribution companies or discoms with multiple power supplier franchises companies. She said these changes will bring forth competition amongst power suppliers, energy efficiency and consumer services. When 24 crore people are still to force to live in the dark, the finance minister is asking to install prepaid smart meter. Smart meters are bound to kill parity in the accessibility of power as consumers are going to be at the mercy of the supplier who will then have the complete impunity to fix rates as per their whims. Thus, prepaid smart meters are practically going to do away with power subsidies and affordable power access for the poor population and are going to put a huge burden on the poor when it comes to power accessibility.
While proposing Rs 22,000 crore outlay for renewables and power sector in 2020-21 to realise the goal of 24×7 electricity for all, the Minister assumes that lack of power generation is what is stopping from providing power for all, while India is power surplus. Without prioritising distribution of power to all, focusing just on generation would only sustain the inequity in distribution.
Power sector contributes a major share to the non-performing assets (NPAs) of the banks. Without addressing how to reduce it, offering the new corporate tax regime to new and existing power generation companies would only contribute to more NPAs, rather than reducing it.
The emphasis on highways, waterways, coastal and land port roads, economic corridors and smart cities is a continuation of the previous agenda of the government, which has led to displacement, livelihood loss, environmental damages and a huge contribution to the climate crisis.
In the budget 2021, 100% tax concession for foreign investments for Sovereign Wealth Funds of foreign governments in the priority sectors especially in the Infrastructure sector and other notified sectors were announced. NIIF, India’s first sovereign fund started in 2015, it has till made investments in failing airlines and existing airports will hardly qualify as new infrastructure Investments in priority sectors.
The Rs. 22,000-crore equity support for two infrastructure finance companies – India Infrastructure Finance Company Ltd and a subsidiary of National Investment and Infrastructure Fund – as a part of the Rs. 103 lac crore for infrastructure for the next five years, would be using taxpayers’ money into projects which would be detrimental to people and the environment.
There has been a specific announcement for North Eastern region has a very high priority along with providing smooth access to financial assistance from multilateral and bilateral funding agencies. North Eastern region is already seeing an aggressive push for infrastructure projects be it South Asian Highways, hydropower projects, transmission projects. Institutions like the ADB have massive investments in the region. This has caused destruction of the fragile ecology, undermining the aspiration and protection the constitution provides in the region and outright violation of land laws in the region. Providing easy access to multilateral and bilateral funding agencies would only aggravate the situation further.
The budget instead of taxing the 1%, who hold more than 42% of the nation’s wealth, have further eased their doing business and wealth creation by reducing corporate taxes and other taxes which will rob the treasury of revenue which could be used for investment in health, education, nutrition etc. The reduction in taxes is in line with international financial institutions agenda on taxes. The government had earlier reduced corporate tax from 30% to 25% now further reducing it to 22% and 15% for new companies in the manufacturing sector.
Along with this, the announcement to set up an Investment Clearance Cell to provide “end to end” facilitation and support, to provide investment advisory, land and clearances just furthers the agenda of improving rankings under Ease of Doing Business rankings for foreign investments jeopardizing any environmental, social protection in the country.
As a recent report by Oxfam said, increase taxation on the wealthiest 1% for the next 10 years, would have been equivalent to creating millions of care jobs in education, health and elderly care, and other sectors.
Rhetorics do not fix the economy
There were many policy changes that lacked details are the proposed changes to the Banking Act, to include cooperative banks and changes in the Companies Act to decriminalize civil offences and the proposed changes in the Central Board of Direct Taxation in order to absorb losses. The Minister failed to specify the changes and amendments that would be made. As we have seen in the past, while the budget lacks concrete measures to fix the economy, drastic, half baked and even detrimental policy changes like demonetisation, tax cuts for corporates, merger of banks have all been pushed in between sessions, without any debate in the Parliament.
When the GDP growth is at its lowest in decades, one cannot be at peace just because the Finance Minister vigorously and eloquently says so!
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