Populism Trumping Prudence


By Prof. S.N. Misra

POPULISM TRUMPING PRUDENCE The interim budget juggles with three populist measures: how to humour the middle class, reach out to the small farmers and prop up the real-estate sector. What’s most disconcerting to the discerning is that the government is abdicating the path fiscal prudence.

Since 2004, both UPA and NDA government have been following a path of achieving high growth with fiscal discipline. The impact of nearly three crores assesses going out of the tax net in terms of tax loss is going to be around Rs.25000 crore. The DBT to the farmers would be of the order of Rs 75000 crores.

Accordingly, the projection that the tax revenue will go up from 14.84 lakh crores (2018-19) to 17 lakh crores in the next financial year (14.5%) is unrealistic. The GST collections have been about 1 lakh core less this year. Therefore the fiscal deficit target of 3.3% next year is highly unlikely.

The medium fiscal target and the likely slippages in terms of FD and tax collection are enumerated below.

The India development strategy @75 to increase tax collection from 17% to 22% of the GDP looks hollow. Disturbingly the subsidy bill has also gone up from Rs. 2.24 lakh crore to Rs.2.99 lakh crore during 2018-19 and is likely gone up further to Rs.3.49 lakh crore during 2019-20 & Prof.

Reinhart and Rogoff, based on a global study from (1944-2010), had brought out (2010) how a debt/GDP of more than 90% can impact growth negatively. The crisis in Greece where debt had gone up to 188% has underscored the impact of high debt on growth. Instead of learning from these global lessons, India seems to be on a slippery path of fiscal indiscipline.

The problem of the farmer is far more serious; than a dole of Rs.6000/- per year. The problem of farmers is a combination of low productivity, sudden fall in farm prices and low size of average holding. There is a need to put in place a mechanism of price efficiency, which will compensate farmers when the market prices fall below the minimum support price.

To improve productivity, there is a need to improve water use efficiency; close the technology gap and invest more in creating more irrigation facility. The share of small and marginal holdings below 1.08 hectares constitute 86% of the total available land. They would need consolidation of land holding to avail of mechanisation. Quite clearly the Rythu Bandhu scheme of Telangana, where Rs.10,000/- is given to farmers, tenants, sharecroppers and landless workers is far humane than the present budget proposal to limit payment to only small/marginal/farmers. This would deprive about 14 crore sharecroppers and landless workers of benefiting from the DBT scheme.

The CMIE (2019) report has brought out how 11 million persons lost jobs in the unorganised sector during 2017-18. Most of them were uneducated women (8.8 million), engaged as labourers, workers and small traders. There is a sharp decrease in the female workforce from 34% (2009) to around 27% now. The recent NSSO report of (68th round) shows how the percentage of educated women who are unemployed, has gone up to 13.6% in the rural areas and 27.5% for the urban areas.

The trend in unemployment percentage over years is plotted below for both urban and rural segment including males and females.

There is a legitimate perception that the Modi government is high on hype and low on performance. In the case of Ujjwala scheme, evidence shows that nearly 60% of the beneficiaries have not gone for a refill. Close to 50% of the Jan Dhan account is dormant. The NDA government had also promised housing for all: 2 crores urban and 4 crores rural by the end of 2020. By its own admission, it has completed only 20% of its target so far. The benefit of MSP is yet to be extended to most farmers.

The Make in India initiative has seen no improvement in the Gross Value Addition percentage, which remains stagnant around 7% per year. The Skill India initiative has so far trained 7% of the youth. The startup initiatives are languishing because they are yet to get relief from the dreaded Angel Tax (Section 56(2)(vii)(b), a tax which is levied on capital receipts from Indian investor if it is above the fair market value of shares.

In a remarkable book “The Great Indian Middle Class” (2007) Sri Pavan K. Varma writes how the Indian middle class is guided by self-interest and completely non-cognizant of the plight of the underprivileged. He has also brought out how economic liberalisation has heightened the trend.

Harsh Mander writes in his book “Looking Away”, how the elite and the middle class can look away when the poor left dying under the fury of nature. Time will show whether the doles by Piyush Goyal before the polls would big a difference to the political fortunes of the BJP or the ‘hand’ that promises to care for the poor through a minimum income scheme will resurrect its future.


About the author

The author teaches Economics. [email protected], Ph-91-7381109899


Disclaimer: The opinions expressed in this article are the personal opinions of the author. The facts and opinions appearing in the article do not reflect the views of Pragativadi and Pragativadi.com does not assume any responsibility or liability for the same.

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