Finance Minister Nirmala Sitharaman’s maiden Budget has made it abundantly clear that the government is in no mood to expedite liberalising measures, let alone push for big-bang reforms. She has stuck to the course charted by her predecessor, Arun Jaitley—the course of incrementalism. That is, reform in small doses, and that too, if you must.

The good things first. The government remains fiscally prudent, despite strains on the exchequer. Second, it lays a great deal of stress on infrastructure development.

While Sitharaman reiterated her government’s goal to make India a $5-trillion dollar economy, the tenor of her Budget speech and proposals was steeped in dirigisme. Consider this: “We do not look down upon legitimate profit earning.” The fact that she uses the term legitimate profit-earning implies that she believes in the existence of illegitimate profit-earning. By the way, it is not just her belief but also that of her government’s; it calls illegitimate profit earning as profiteering. This was the reason that the government created a fiend called the National Anti-profiteering Authority (NAA) two years ago to ensure that companies passes on the cuts in GST to consumers. Recently, the government extended the NAA’s term by two years.

But, unlike the United Progressive Alliance government which was all about entitlements and fiscal profligacy, the Modi regime doesn’t believe in playing havoc with public finance. In fact, it intends to bring down the fiscal deficit from 3.4% to 3.3% of the Gross Domestic Product (GDP) in 2019-20. This seems difficult against the backdrop of a shortfall in GST collections, the slowing growth rate, almost stagnant industrial production, and sluggish agriculture.

The Budget also intends to boost infrastructure development. The means adopted to shore up revenue, like the Rs 2 per litre cess on petrol and diesel, are not very good, but they may help achieve the deficit target. The cess is for road and infrastructure development. As it is, petroleum products, which are outside the GST net, are highly taxed; now the tax incidence will further increase. The government has also trashed concerns about higher inflation on account of the cascading effects of costlier diesel.

Then there is a hike in the surcharge on high net-worth individuals (HNIs)—that is, those having taxable income from Rs 2 crore to Rs 5 crore, and Rs 5 crore and above. The move is not something that would endear the government to the rich; it is also likely to dampen the enthusiasm of the investing community towards India, but that the Narendra Modi government is more concerned about the feelings of the poor rather than the rich.

Unsurprisingly, the Budget oozes solicitude for the poor. Sitharaman even coined a slogan—gaon, garib aur kisan (village, poor, and farmer). In her long speech, she spoke at length on every aspect of the economy, what needs to be done, the measures her government has taken to improve the situation, and so on. Reforms didn’t figure in her priorities.

For instance, for agriculture, which has seen little liberalisation, she offers the usual stuff: livelihood business incubators and technology business incubators; 75,000 entrepreneurs to be skilled in agro-rural industry sectors; 10,000 new farmer producer organisations to be formed; letting farmers benefit from e-NAM; zero budget farming. But there were no reforms—no respite from the obnoxious and debilitating mechanisms of the socialist era, no end to the anti-farmer APMC and the Essential Services Act.

Micro, small and medium enterprises (MSMEs) also got the usual dose of rhetoric and placebo: a Pradhan Mantri Karam Yogi Maandhan Scheme; pension benefits for 3 crore retail traders and small shopkeepers with annual turnover less than Rs 1.5 crore; Rs 350 crore earmarked for 2019-20 for 2% interest subvention (on fresh or incremental loans) to all GST-registered MSMEs; payment platform for MSMEs to be created to enable the filing of bills and payment thereof, to eliminate delays in government payments.

There is some relief for the companies with annual turnover up to Rs 400 crore, as their direct tax liability has been brought down to 25%. However, for the middle class, the ruling dispensation’s main constituency, there is no cut in income tax rates. Those buying a house costing up to Rs 45 lakh will get benefits of Rs 1.5 lakh, though.

The government has made permanent account number (PAN) and Aadhaar interchangeable, which will benefit small enterprises.

There is also a protectionist streak in Budget. It has hiked the basic customs duty on cashew kernels, PVC, tiles, auto parts, marble slabs, optical fibre cable, CCTV camera, etc. This may help the Make in India programme, but it would neither be good for domestic consumers nor for exports.

On privatisation, the government’s priorities are topsy-turvy. It should have begun with bank privatisation and then proceeded on to the sale of public sector undertakings (PSUs); still better, it could have initiated the privatisation of both state-run banks and PSUs. But bank privatisation has been ruled out, as Finance Secretary Subhash Chandra Garg made it clear at a press conference. Instead, the government intends to spend Rs 70,000 crore on the banks it owns, evidently for recapitalisation.

From disinvestment in PSUs, the government expects to gather Rs 105,000 crore in the current fiscal.

The government remains focused on infrastructure, and the funding needed for it. It is exploring all options. The Rs 2 cess on petrol and diesel is there. There is the plan to constitute Credit Guarantee Enhancement Corporation in 2019-20. The government is eyeing long-term bonds.

External borrowings are also on the agenda. “India’s sovereign external debt to GDP is among the lowest globally at less than 5%,” the Finance Minister said. “The government would start raising a part of its gross borrowing programme in external markets in external currencies. This will also have beneficial impact on demand situation for the government securities in domestic market.”

If Modi II’s first Budget is viewed as indicative of policy direction the government would take, reforms don’t seem to be happening in the foreseeable future. Infrastructure is likely to become better, even if on borrowed money. This would still be better than the UPA’s legacy: good infrastructure can be used for brisker development in the future, but entitlements are banes forever.

 The author is a columnist and financial analyst.

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