The interim fiscal budget for 2019-20 is the last hurrah of the ruling BJP-led NDA regime ahead of the national elections expected by May. Although such election-year budgets are intended to provide funding for essential expenditures for the first four months of the financial year before a new government takes over, this one targeted benefits for powerful vote-banks like farmers, middle class and the informal sector of the economy. It also unveiled a re-election manifesto of sorts with an ambitious “Vision 2030”, according to which India would be a USD 5 trillion economy in five years and a USD 10 trillion economy in the next eight years.
The optimism behind Vision 2030 is, of course, India being recognised as a “bright spot of the global economy” as the “world’s fastest growing major economy”, according to the interim budget speech of the acting Finance Minister Piyush Goyal, who was standing in for Arun Jaitley who was in the US for medical treatment. Goyal said that from being the 11th largest economy in the world in 2013-14, India is today the 6th largest. India is now a USD 2.6 trillion economy and it can double to USD 5 trillion in five years only if its nominal growth, inclusive of inflation, touches 14 per cent.
Is this feasible? What role have the budgets of the NDA regime of Prime Minister Narendra Modi since 2014-15 played to further some of its aims?
According to the interim budget speech, India’s GDP growth during the last five years is higher than what was achieved by any government since 1991. However, the average annual nominal growth achieved is 11 per cent, which is much less than what is needed to double India’s GDP to USD 5 trillion in the five years. To attain Vision 2030, growth must accelerate. This is, in turn, requires structural reforms in land, labour and capital markets. This entails massive big-ticket investments in state-financed infrastructure, which is feasible when budgetary resources kick-start this process.
Vision 2030 comprises ten dimensions, many of which are aspirational targets without a roadmap. Next-generation infrastructure must be built, including inland waterways and developing the coastline. The country must be pollution-free. Rivers must be clean and safe drinking water available to all. India must become a digital economy. Rural industrialisation must be expanded using digital technologies. India must be self-sufficient in food. An Indian astronaut must be in space by 2022. Indians must become healthier. India must turn into a minimum government maximum governance nation.
If we confine our attention to physical infrastructure like roads, railways, seaports, airports, urban transport, gas and electric transmission and inland waterways, this was indeed the focus of several NDA budgets, especially the union budgets for 2015-16, 2016-17 and 2018-19. This was reflected in substantially stepped up capital outlays for road, highways and railway infrastructure. This boost to infrastructure is no doubt behind the finance minister’s statement that “India is currently the world’s fastest highways developer, with 27 kilometres of highways being built each day”.
Equally impressive is the progress in track building and gauge conversion in the railways. Such investments are bound to have multiplier effects on growth but much more is required. However, the fiscal space for funding such investments has been constrained by the surge in revenue expenditures since 2014-15 that have crowded out much-needed capital expenditures. Although tax revenues have gone up by 82 per cent, much higher than the nominal GDP expansion of 68 per cent, the bulk of this has gone to meet burgeoning non-plan revenue expenditures on salaries, interest payments and subsidies.
From where then will budgetary surpluses be generated for public investments in infrastructure to realise Vision 2030? The government has been forced to borrow more - mostly off-budget - to finance capital expenditures according to the Comptroller and Auditor General of India’s report on the compliance with the Fiscal and Responsibility and Budget Management Act of 2003 for 2016-17, for instance. The much-needed boost to infrastructure spending also runs up against the stress in the public sector banking system, which is groaning under the burden of a huge amount of stressed loans.
The massive recourse to off-budget borrowings obviously entails much larger fiscal deficits than has been presented in the official documents. The interim budget claims that it could have attained its target for the fiscal deficit – the gap between government expenditure and revenues – for 2018-19 at 3.3 per cent of GDP were it not for transferring a part of the INR 6,000 towards assured income support to each of the 120 million small and marginal farmers this financial year. The reality is that the deficit had already hit 3.8 per cent of GDP in the first eight months of this fiscal.
The temptation to engage in opportunistic electoral-cycle behaviour in an interim budget was no doubt warranted by the raging agrarian distress all over India. Even the last full-fledged union budget for 2018-19 stepped up pro-farmer, pro-rural spending: it announced that minimum support prices - prices at which crops are bought by government agencies - of various summer crops would be one and a half times their production costs. Institutional credit was raised significantly. So, too, did the union budget for 2016-17, which enhanced allocations for rural roads, interest subsidy on farm loans and proposed a Long–Term Irrigation Fund.
The big question is how all of this is a budgetary foundation to make India self-sufficient in food, exporting to the world as per Vision 2030? The above-mentioned cash-support measures must be followed up with those that address why farming in large parts of India is becoming unviable, including a comprehensive crop insurance scheme.
The scale of resources the various NDA budgets have set aside for irrigation or micro irrigation to make India agriculture less of a gamble on the monsoons is also much less than what is needed. Only then can farm production and productivity be raised.
However, all of this doesn’t cloud the NDA regime’s desire that a USD 5 trillion economy in five years includes achieving USD 1 trillion from agriculture and allied activities, USD 1 trillion from manufacturing and USD 3 trillion from services. Evidently, it is hoping that currently the world’s fastest-growing major economy expands more rapidly to realize Vision 2030.
(The author is an economics and business commentator based in New Delhi. He can be contacted at firstname.lastname@example.org)