Union finance minister (FM) Nirmala Sitharaman, starting with the continuing global uncertainties and India’s continued economic resilience, chose to deviate from the path of economic transition to Viksit Bharat to a path of least resistance. It reflects the compelling political necessity. Neither the poor nor the rich have much to see in the Budget.
Financially, she proved prudent by limiting the fiscal deficit to 4.9% of the gross domestic product (GDP) amidst the buoyancy of the goods and service tax (GST) and direct tax revenues. She did not offer much to the taxpayer and ignored the senior citizens for any additional relief. However, she protected the interests of women. And now, the detailed comments follow.
One of my suggestions to increase the security transaction tax (STT) merited her attention partly limiting to ‘futures and options’ (F&O). No wonder, the share market reacted badly during the entire Budget session. Capital gains tax increase by around 30% (from the existing 15% to 20% this fiscal) for short-term capital gains and by 25% for the long-term capital gains (10% now to 12.5%) for some assets, is an unwelcome step.
A few strategic investments in the budget are linked to loans from multilateral lending institutions. Any such loan will carry some conditionalities and one is not sure for all such schemes, what the future holds for them.
A major part of the time has been devoted to responding to the needs of five states of which the top are the first two alphabets: Andhra Pradesh and Bihar. The rest are Odisha, Uttaranchal and Himachal. Northeast was a compulsive addition. When she mentioned the allocations to Andhra Pradesh, a reference to the AP Reorganisation Act 2014 was made. But the Act has, in good measure, what was needed for its compatriot, Telangana and not a word about it. Further, a federal government beckons the interests of the whole country while a few could certainly require special attention. Her Budget eclipsed the rest of the nation! The Budget thus moved from being an economic instrument to being a political instrument of appeasement to the partners of the National Democratic Alliance (NDA).
Coming to the sectors, the apparent focus on skill development, agriculture, micro, small and medium enterprises (MSME), climate change and digital penetration lull us into a paradigm shift.
Agriculture
Number-wise, allocation to agriculture and farmers’ welfare has been increased year-on-year (y-o-y) by 5% over the FY24 revised estimate (RE) to Rs1.24 lakh crore. Fertiliser subsidy has been reduced by 13% from the FY24RE. Basic customs duty (BCD) on ammonium nitrate (TAN) increased by 30% from 7.5% to 10% while the BCD on shrimp feed, fish feed, and prawn has been reduced to 5% and the same on artemia and artemia cysts, and on pre-dust breaded powder for use in processing seafood has been totally removed.
The MSP extension beyond the cereals to cover 50% of the cost will have to be viewed in the context of the competitiveness of the farm sector. It is doubtful that this will by itself incentivise the production and productivity that are begging for attention.
Digital agriculture and innovation got a shot in the arm at the dextrous hands of the FM. The initiatives to bolster digital infrastructure in agriculture, coupled with efforts to promote natural farming, high-yielding, climate-resilient seed varieties, may have benefits in the long run but in the short run, the farmers’ income and crop security do not find a place in the budget. But from where is the money going to come for these technology introductions? Even if NABARD refinances, the banks are not going to pick up the tab. Had she taken pains to strengthen the insurance in the farm sector akin to South Korea, farmers would have at least smiled. Agricultural reforms targeting more cold storages and last-mile connectivity to the market in a seamless fashion do not have significant allocations in the budget. Mention of e-NAMs and improvement to market yards have been made but with no specific allocations. PM-Swanidhi to develop 100 weekly haats/ street food hubs to empower the local economy has been announced. The announcement comes amidst increasing adulteration in street food corners throughout the country endangering the lives of the people.
The Drone-Didi scheme will train 15,000 women who will be trained to operate drones for agricultural purposes such as fertilisation of crops, monitoring crop growth and sowing seeds, etc. With 50% of rural population being women, this number is not laudable but laughable.
The Budget allocation for the agricultural sector is less than 2% of the total Budget outlay to a sector that employs the largest number of persons and that takes care of the food security of the nation.
The best allocation comes to the tribal population through the PM-Janjatiya Unnat Gram Abhiyan scheme targeting the development of 63,000 villages benefitting 50mn (million) tribal population in aspirational districts. Similarly, the PM-Vishwa Karma Yojana aims to provide comprehensive support to artisans and craftspeople with the provision of basic and advanced training with stipend and skill upgradation.
Infrastructure and inclusive growth find a place through substantial allocations to rural development (Rs2.65 lakh crore), PM Rojgar Yojana, PM Awas Yojana – Urban 2., Rs2.2 lakh crore allocation in the next five years to provide houses for the urban poor and middle class, to mention a few.
Employment-linked incentives announced in the Budget have a catch.
- One month wage up to Rs15, 000 for new formal sector entrants, to benefit 2mn youth in the manufacturing sector.
- Reimbursement of Rs3,000 a month for two years to employers for EPF (employee's provident fund) contribution per additional employee, projected to benefit over 5mn youth. Incentives for EPF contributions for the first-time employees and employers for four years, benefitting 3mn youth.
- Internship of Rs5,000 per youth employed in the manufacturing companies. The catch is that 500 top-ranking (through market-capitalisation norm?) companies will be identified to implement this scheme. Why would these companies like the ONGC, PFC, REC, NMDC, and the like, need be given from taxpayers’ money to meet the internship cost of Rs5,000 for one full year and later to absorb them? The intern is an additional manpower available to the company and the company could be ordered to take, say, 5% of their present employee strength as internees from reputed technology and management education institutions.
- The MUDRA loan limit increased from Rs10 lakh to Rs20 lakh to the Tarun category borrowers, provided they have promptly repaid their first loan.
- A corpus of Rs1 lakh crore with a 50-year interest period will be established for youth through multilateral lending institutions’ support.
The National Apprenticeship Promotion scheme will boost internee engagement from the present 0.23mn to 5mn through direct benefit transfer (DBT).
Employment got a boost in the Budget with an outlay of Rs2 lakh crore benefiting in all 41mn youth in the next five years. Around 2mn youth are proposed to be trained in collaboration with the state governments over a five-year period through 1,000 industrial training institutions.
MSMEs
I am reminded of what Winston Churchill said once: “Give us the tools, and we will finish the job” (May 1941). This holds true of the MSMEs whose contribution to the economy has been acknowledged by the FM in her speech. They face many challenges from acquiring land to start their manufacturing activity to the point of sale – the entire supply chain and, above all, easy and affordable as well as timely access to credit.
A separately constituted self-financing MSME credit guarantee fund will provide guarantee cover up to Rs100 crore for an upfront guarantee fee and an annual guarantee fee on the reducing loan balance. This will ensure continued credit flow to the MSME segment. Public sector banks (PSBs) have been asked to build internal capacity to assess MSME credit instead of relying on external entities.
The FM also announced that the stress of the enterprises should be recognised at the special mention account stage itself and should be addressed appropriately in time. This, in effect, is the lifecycle approach to lending the enterprises. We will have to wait and see how the banks take this mechanism forward. She would have, instead, announced a separate institution like industrial health clinic for the stressed enterprises that would do its own due diligence and revive/ restructure the enterprise till it attains increase in revenue. The other alternative is to repack the stress component for a term loan portfolio. But the very change in thinking differently for tackling the stress of the enterprises is a welcome move.
Providing a special guarantee by the Central government to such incremental credit is a welcome step in the right direction.
The other move worthy to mention is her advice to the lenders to dissociate from the existing rating mechanism and move to better due diligence on industry-wise parameters gathered from their experience thus far. While the FM has put two steps forward in skilling, re-skilling and upskilling, she fell short in enhancing insurance and guarantees adequately and appropriately to the farmers and MSMEs.
The FM did not speak of any divestment or privatisation which was a common refrain in all her previous Budgets. This reinforces the influence of the voice of the electorate. The Budget has no reform agenda worth mentioning. It is transformative to the extent that it moved to a socialistic agenda from a capitalistic agenda.
(The author is an economist and risk management specialist)
