A try-hard Budget

It's not often that corporate leaders are at a loss for words about a Budget speech. But that's exactly what happened with investment banker and Ambit boss Ashok Wadhwa during a television programme, when he was asked to rate finance minister Nirmala Sitharaman's 2020 Budget. Wadhwa said it was not easy to rate this Budget, a view which seemed to resonate with many in the corporate sector, and the markets, as Sitharaman sought to do something for several sectors but ended up with a Budget which was complex, and, in large part, disappointing.

Sitharaman's speech, which she could not complete as she felt uneasy towards the end, still goes down as the longest-ever Budget speech, at nearly 2 hours and 45 minutes. But despite a number of moves which were apparently aimed at pushing consumption and spending by putting more money in the hands of the individual, it will be remembered more for its complexity and lacking that one big stimulus to boost growth than anything else. Not surprisingly, the markets gave it a firm thumbs-down, with the S&P BSE Sensex and the Nifty 50 both deep in the red, with the former losing 988 points and the latter over 318 points (or 2.66%).

To be fair to the finance minister who has been seen as making sincere attempts over the past several months to listen to growing concerns around the economy, the Budget tries hard to address several areas in a bid to push the flagging growth trajectory, busting the fiscal deficit target of 3.3% in the process and ending up at 3.8% for FY20. The next year's fiscal deficit target too has been pegged at 3.5%, a figure which will be keenly watched. Sitharaman's Budget is pegged around three prominent themes -- governance, ease of living and the financial sector. Under ease of living, the thrust is on an aspirational India, pushing economic development and creating a caring society. In the process of seeking to address all these elements, Budget 2020 falls short of putting together that big picture or generate that one big game-changing stimulus which could legitimately claim to be the big push to get the growth engines moving again.

The government will, of course, argue that this is a Budget for the future, and the effects of the bits and pieces Sitharaman has put together will be seen over years, and that it does enough to address immediate concerns like flagging consumption, pushing infrastructure, health, education, entrepreneurship, and technology and innovation. One may even tend to agree with that to a point. But what this Budget needed desperately was those one or two big moves which would lead to a significant growth stimulus. And despite the FM's best efforts, that did not happen.

The big move on restructuring personal income tax slabs was also one where experts were left scratching their heads, with the new slabs minus the exemptions -- with 70 of them gone -- left as optional for the individual who could also choose to continue with the existing slabs. The one big move which could have a major positive impact is that on the infrastructure front, where the Budget gives sovereign wealth funds 100% tax exemption on dividend, interest and capital gains on their investment in infrastructure before March 31, 2024, with a minimum three-year lock-in. The Budget has also removed the dividend distribution tax (DDT), with dividends once again only to be taxed in the hands of the taxpayer. Dividends received by a holding company from its subsidiary will also be exempt.

Significantly, disinvestment receipts have been targeted at a hefty ₹2.1 lakh crore for FY21, up sharply from the FY20 target of ₹1.05 lakh crore, while the revised estimates for FY20 peg these at a much lower ₹65,000 crore. How much the government will be able to garner by way of disinvestment next fiscal is also going to be keenly watched. The Budget has announced share sales in IDBI Bank and an initial public offer of Life Insurance Corporation as well.

With the fiscal deficit target well and truly busted in the interest of pushing various engines, it's no surprise rating agencies have not taken kindly to this Budget. Moody's reacted predictably, saying: “India's 2020-21 budget highlights the challenges to fiscal consolidation from slower real and nominal growth, which may continue for longer than the government forecasts. This risk is reflected in Moody's negative outlook on India’s rating." The statement added: "While India’s new budget calls for a modest narrowing of the deficit to 3.5% in the fiscal year 2020-21 from 3.8% in the fiscal year 2019-20, sustained weaker growth and tax cuts would make gross revenue targets difficult to achieve. The government also has limited room to reduce expenditures without further weakening growth."

Over her nearly three-hour Budget speech, Sitharaman, however, soldiered on, moving from agriculture, irrigation and rural development to seeking to boost micro, small and medium enterprises, and then going on to health and education, tourism, banking, the corporate bond market, financial services and the tax cuts. There was something in each sector, but the sum of the parts was not one which would decisively move the needle for the economy.

Sitharaman's Budget would get high marks for sincerity of purpose. It is a well-meaning document with good intentions. But the result may well fall short of what the economy needs, or the business community expected.

In a way, this Budget reminds you of the Paul Simon song:

"Slip sliding away/slip sliding away/you know the nearer your destination, the more you slip sliding away..."