Viewing Budget, muting noise

Anticipation builds for Union Budget

The upcoming Union Budget is one of the most anticipated events in India’s calendar, sparking heated TV debates, discussions, and strong opinions across the political spectrum.

Critics from the left would decry insufficient taxation of the rich and welfare spending, while the right would argue that tax terrorism and subsidies inhibit economic growth.

The middle classes and the retired will crib that they are always ignored (and rightly so, as I belong to both groups.)

And there will be hundreds of memes from all hues.

Amidst this cacophony, it will be very difficult, yet essential for us, citizens, to evaluate the budget with a rational, dispassionate, and objective perspective, appreciating the complexities and constraints under which the national budget would have been made.

To truly assess any budget, it is vital to understand the delicate balancing act that the Finance Minister (FM) must perform, taking into account GDP growth, the welfare of the poor, managing inequality, global investor sentiment, international obligations, and the risk of capital flight.

The complex balancing act of budgeting

No budget can be all things to all people. Yet we have been conditioned to view budgets only from our own narrow personal perspectives, disregarding the existence of others.

Any FM must juggle multiple, often conflicting priorities. This involves making tough choices to ensure sustainable growth while addressing the needs of all sections of society.

If we were given the option to identify the ways to mobilize funds, we would get just 50% of the current budget funds. If we were given the option to allocate the funds across the various heads, we would need 200% of the budget funds.

Here are the key dimensions of the fine art of balancing the budget:

1. Driving GDP growth

Economic growth is the engine that fuels job creation, higher incomes, and government revenues. Policies such as infrastructure development, industrial incentives, and innovation-friendly measures are critical to maintaining momentum.

For example, initiatives like Digital India, Make in India and the PLI Scheme aim to boost manufacturing and exports, creating jobs and attracting foreign investment.

2. Addressing inequality and welfare of the poor

A growing economy must also ensure that the benefits of growth reach the poorest sections of society.

Welfare programs such as Ayushman Bharat for healthcare, PMAY for affordable housing, Jan Dhan Yojana for financial inclusion, and free food distribution schemes reflect the government’s focus on taking care of the underprivileged. These programs ensure basic dignity while reducing vulnerability to economic shocks.

3. Balancing taxation and wealth creation

Excessive taxation on the wealthy or corporations can discourage investment and trigger a flight of capital and investors, weakening the very engines of growth.

The government has, therefore, to take steps to reduce corporate tax rates aligning with the corresponding rates in developed or competing countries, while still maintaining fair direct taxes.

Simultaneously, the introduction of GST with lower rates on essential goods (instead of one common GST rate on all items) shows sensitivity to the poor.

4. Controlling inflation and fiscal deficit

Inflation disproportionately impacts the poor, eroding their purchasing power. Fiscal deficits, while necessary for certain expenditures, must be controlled to maintain economic stability and investor confidence.

The current government has adhered to prudent monetary policies, ensuring inflation targeting as much as possible while managing fiscal pressures responsibly.

5. Encouraging skill development and job creation

To address structural unemployment, initiatives like the Skill India Mission, Apprenticeship Schemes, and support for MSMEs play a vital role.

While these programs may not have provided high-paying jobs, they have (hopefully) created a foundation for long-term employability and entrepreneurship.

6. Meeting global expectations

India operates in a globalized world, where foreign investors, trade partners, and international institutions closely monitor policy decisions.

If Indian (and foreign) investors are not investing in expanding capacity or in new ventures, either the investment opportunities or climate are not conducive, or the other investment options or markets are more attractive. Exhortation by the PM or anyone else won’t make them invest.

The budget must balance domestic priorities with international commitments, such as climate change goals and maintaining a consistent and investor-friendly image.

7. Managing populist expectations

Governments must walk the fine line between populist measures that garner short-term political dividends and long-term policies that ensure sustainable growth.

It’s tempting to roll out freebies in a dog-eat-dog political race, but the economic impact of such measures often constrains fiscal space for productive investments.

A holistic view: Integrating growth and equity

Critics often fail to see the broader picture when evaluating the budget. For instance:

Schemes targeting inclusion: Programs like Mudra Loans, which provide credit without or with minimal collateral, empower small entrepreneurs, and foster inclusive growth.

Free food distribution: During the pandemic, free food schemes helped millions survive, reflecting a blend of compassion and practicality.

And since Covid has set the clock back by a few years, it’s difficult to roll back this scheme in the short term, nor is it objectively fair.

Focus on MSMEs and self-employment: The government’s focus on MSMEs has been instrumental in creating low-cost, mostly low-income employment opportunities.

These efforts reflect a nuanced approach that integrates economic growth with social justice. However, citizens must also appreciate that challenges such as inequality and unemployment are deep-rooted and cannot be resolved overnight.

How citizens should evaluate the coming Budget

I have no clue about what the coming budget proposals will be, nor am I trying to prejudge it either way. But, to assess it objectively, we must keep the following in mind:

1. Avoid extreme biases

Both the left’s call for more welfare spending and the right’s demand for tax cuts have their merits. However, budgets are about balance, allocating the available limited resources efficiently while addressing the needs of diverse groups and needs. The need to provide for the subsistence of the poor and vulnerable should be the top priority.

2. Focus on the long-term vision

Short-term gains often come at the cost of long-term sustainability. Structural reforms may take years to show results, but they lay the foundation for a resilient economy.

3. Understand the constraints

The government operates within fiscal, political, and global constraints. Critics must acknowledge these realities instead of focusing solely on the immediate outcomes or interests of any one group or section of society alone.

4. Examine outcomes, not mere numbers or headlines

Focus on how budget policies impact employment, poverty reduction, and growth rather than being swayed by sensational critiques, or mere numbers (whose orders of magnitude and efficacy most of us can’t relate to anyway).

5. Contextualize global realities

India’s budget is shaped not only by domestic factors but also by global dynamics such as oil prices, geopolitical risks, shrinking export markets, international trade issues, and increasing protectionism.

A call for rational engagement

The Union Budget is more than a financial exercise; it is a vision for the nation’s future. Instead of succumbing to political biases or one-sided critiques, let us engage with them as informed citizens.

The FM must strike a fine balance between growth and equity, ambition and prudence, and short-term relief versus long-term stability.

This balancing act is neither simple nor perfect, but it reflects the complexities of governing a diverse, fast-growing economy like India.

As citizens, our role is to approach the budget with an open mind, recognize its limitations, and support efforts that aim for inclusive and sustainable growth.

Just like everyone else, I have my own expectations from the budget too, but I realize that no FM can be all things to everyone. So, I will only focus on the intent and direction of the budget, rather than look at every word in the budget with a microscope.

Listen to multiple points of view (not just to one’s own echo chambers), try to form your own based on all these, also keeping in mind your broad opinion of the government.

With constructive engagement with the government, we can contribute to shaping policies that reflect the aspirations and potential of a vibrant, growing India.

Note:
1. Text in Blue points to additional data on the topic.
2. The views expressed here are those of the author and do not necessarily represent or reflect the views of PGurus.

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