Calling the union budget merely a vision document and not a financial statement that is presented in parliament, Arvind Mayaram, former finance secretary, has said that the budget this year has left out many critical issues leaving the country wondering what is going to happen about them.

“The economy is coming out of contraction. The union budget is merely a vision document and not a financial statement that is presented in parliament. Many critical issues have been left untouched leaving the country wondering what is going to happen on those issues. The finance minister and her officers should have laid down the foundational issues that the budget should address,” said Mayaram.

He was in a conversation with Kailashnath Adhikari, MD, Governance Now, during the webcast as part of the Visionary Talk series held by the public policy and governance analysis platform.  
 
Watch the video:



He referred to report titled, ‘State of Working India 2021: One Year of Covid-19’, prepared by Azim Premji University, that says 230 million people were pushed below the poverty line in the pandemic and that this is unprecedented. The report says that since 1995, each year saw a reduction in the poverty line. In 2021, however, for the first time people, fell back into poverty and in large numbers. Gains made over the years have been wiped out during the pandemic.  

Mayaram, who has served as principal economic advisor to the government of Rajasthan, said that the budget does not even mention or acknowledge that many people have gone back to poverty – let alone how they will crawl out of poverty or can be brought out of it.

He said there is no acknowledgment from the FM about growing inequity in India even though it has been noticed globally and neither the budget has any reflection on it. He added that allocation for MGNREGA, the scheme that sustained a huge number of migrants, also has been reduced.
 
“This year it appears the government has declared its victory over unemployment and expects there will less numbers of people migrating. There is no data to back that assumption,” he said.

He also referred to World Inequality Report, 2022, by a team of eminent economists led by Thomas Piketty and Lucas Chancel that says the income gap between top 10% and bottom 50%  in India was 1:22 in 2021 and that India is one of the most unequal counties in the world and this trend is alarmingly increasing.

“It is unprecedented that annual income of poorest 20% Indian households which has been continuously rising since 1995 plunged 53% in the pandemic year 2021 from their levels in 2015-2016. During the same period, the richest 20% saw their annual household income grow 39%,” the report says.   

“This is an alarming development. Who should be worried more than the finance minister that this is happening in the economy? There is  no acknowledgment that globally this distressing phenomenon has been noticed but there is no reflection of it in budget,” said Mayaram, adding that when they can lay out a strategy for other activities for the next  25 years, they should also have acknowledged they will deal with inequality in next five years.

He added the budget does not acknowledge severely falling household savings, the savings rate is at a 15-year low. To encourage borrowing, savings have to be incentivised and there needs to be a high domestic savings rate.

As for disinvestment, he said, the figure is as low as 8% of the targeted amount and would be negative if Air India had not privatised. He said the government is meeting its capital expenditure by cutting down spending like in the social sector, consistently reducing outlays for agriculture, health, education etc, and not from increased resources. He added that even as per last year’s CAG report there were only about 50% spending in the first eight months of last year. “We have no indication why the government believes what it could not do last year it could accomplish this year,” he said while speaking on how the government will raise money for capital expenditure.

He added that in the last eight years private investment in the economy has languished for the first time since liberalisation. He said there are structural problems like manufacturing where 35% of installed capacity is lying unutilised.

“There is an intrinsic structural weakness in the economy that the government is not able to acknowledge and address. The government’s past track record does not evoke confidence. For the private sector, there is a greater need to analyse why it is not investing.”  

Mayaram added that the processes of divestment are very difficult. The private sectors are very wary of judicial intervention, CBI, ED or income tax inquiries etc, and it is not easy for the private sector to do business with the government.

Mayaram said even when private consumption is low and in 2021-22 formed about 55% of the Indian economy, “however, the Economic Survey notes that private consumption is estimated to have significantly improved to recover 97% of the corresponding pre-pandemic level, which is below pre-pandemic level. Consumption in 2022-23 is likely to reach only close to the 2019-20 level. When there is no demand in the market and you cannot expect new investments,” he said.

Asked if the economy is now immune to further pandemic shocks he said, “We have a very fragile recovery predicated on several external factors and require in-depth handling of the economy.”

Speaking on the term commonly used description of India being “the fastest growing economy”, Mayaram said the term refers to an economy that is coming out of the worst. “If an economy was (-)7.5% is now growing at 8.5%, we get carried away by catchy words... we need to look deeper into the numbers and see whether it really means anything. In a democracy it can be looked as political rhetoric but not as an economist, as finance minister, because those who are listening to you begin to believe you don’t really understand what is happening.”   

On structural reforms in the banking sector, he said the administrative structure of control of public sector banks should be dismantled as the RBI oversight on public sector banks is much lower compared to private sector banks. They should all be registered as banking companies under the Indian banking law.

On capitalisation of public sector banks, he said once their management gets better they can come out with IPOs.