Dynamics of Indian Economic Slowdown and Union Budget 2020-21

by V. Mathew Kurian

1. Introduction

The Indian economy is currently in a grave slowdown. According to the new IMF Director, Christalina Georgieva, the world is presently in a ‘Synchronised slowdown’. But the ‘slowdown’ is more pronounced in India. The intensity of the slowdown is metaphorically expressed by Arvind Subramaniyan, the former Chief Economic Adviser to the Government of India, that the economy is now in the ‘Intensive Care Unit’ (ICU). For the last seven years, the economy has been consistently slowing down in its GDP growth rate. The Oct-Dec 2019 quarter growth rate is only 4.7 per cent.

The economy is now inflicted not only by a mere growth slowdown but also by a number of burning issues like widening inequality, farmers’ distress, distress migration, swelling unemployment and under-employment, food inflation and warming environment and climatic change. The deteriorating global economic situation and the neo-mercantile policies pursued by countries like America and the recent Corona virus infection are also not at all conducive for the betterment of the Indian economy. In this predicament, everybody anticipated a pro-responsive Budget for the financial year 2020-21 to cure the economic illness of India by the Finance Minister, Nirmala Sitaraman. So the basic question is: how far the Budget succeeded in addressing the grave economic situation of our country?

In this article, first we make a dynamic analysis of the post-independent Indian economy, especially in terms of ‘economic growth’ and ‘distributive justice’; then an overview of the Budget is presented; and finally, we scrutinise how far the Budget is addressing the current crisis of the Indian economy.

2. Post-independent Indian Economy: A Dynamic Analysis

For analysing the performance of the Indian economy, we distinguish four time periods in the recent history of India. These time periods are: a) 1922-47, b) 1947-90, c) 1991-2015 and d) the period afterwards. These periods are drawn largely by relying on a research work on the Indian economy undertaken by two French economists, Lucas Chancel and Thomas Piketty. The title of their work is: ‘Indian Income Inequality, 1922-2015, from British Raj to Billionnaire Raj’.

Now let us look into the first phase (1922-47). It was the latter period of British colonialism. In this phase, the Indian economy was stagnant and the distribution of income was unjust. Between 1900-01 to 1946-47, the GDP could grow only at a rate of 0.9 per cent and per capita GDP by 0.1 per cent. But the top one per cent of Indians in this colonial phase enjoyed 21 per cent of the country’s GDP.

The period 1947-90 is broadly termed the Nehruvian era. The economic policies pursued in this period were largely in the framework initiated by Jawaharlal Nehru. Nehru visualised a ‘mixed economy’ and ‘socialistic pattern of society’ with the public sector occupying the ‘commanding heights’ of the economy; Nehruvian heritage also comprised ‘democratic planning’.

According to Lucas and Piketty, in this period there was relatively egalitarian distribution of income. As a result, the share of the top one per cent in India’s National Income declined to six per cent. But the Indian economy did not grow much during this time-span. Prof Raj Krishna of the Delhi School of Economics, through a research study, discerned that the National Income of India during this time grew only at a rate of 3.5 per cent; while the population was growing at 2.6 per cent and as a result per capita income could grow only less than one per cent. He termed this phenomenon ‘Hindu Rate of Growth’. Manmohan Singh observed that this state of affairs was due to the ‘mistaken policies’ followed in the so-called Nehruvian era.

The period since 1991 is broadly termed the neo-liberal era or post-Nehruvian era. We distinguish this period into two: the period up to 2015 and since then. In 1991 the P.V Narasimha Rao-Manmohan Singh team engineered the Neo-liberal Economic Policies under the garb of ‘New Economic Policy’ (NEP). The liberalisation policies enabled the Indian economy to achieve a high growth rate in the GDP. India experienced high growth rates, averaging nine per cent from 2003-2007. The growth rate reached an all-time high of 11.4 per cent in the first quarter of 2010.

So India was branded along with China as an emerging global economic power.

But Lucas and Piketty in their study observed that in this post-Nehruvian era Indian income distribution was drastically skewed in favour of the super rich in the Indian economy. As a consequence, the share of the top one per cent has grown to 22 per cent of India’s National Income.

Now we turn to the most recent phase of the Indian economy. Due to a number of ludicrous economic policies like demonetisation, GST and others and the frightening social environment, the rate of growth of the GDP slowed down very much. In the last quarter of 2019-20 the growth rates were less than five per cent. But the present paradoxical situation is that even though the Indian economy is slowing down, the super rich are enhancing their wealth. According to the latest report of Oxfam, “India’s richest 1 per cent of population hold 42.5 per cent of national wealth. While the bottom 50 per cent, the majority of population owns a mere 2.8 per cent.” Along with this economic slowdown and unequal distribution of income and wealth, the economy is confronted with multiple issues, making the situation reach a crisis proportion. The Union Budget in the current years has to be looked in this context.

3. A Glimpse into the Union Budget 2020-21

The total expenditure proposed in this year’s Budget is Rs.30, 42, 230 crores which is 12.7 per cent higher than the revised estimate of 2019-20. The receipts are expected to reach Rs 22,45,893 crores. Revenue deficit is targeted at 2.7 per cent of the GDP, which is higher than the revised estimate of 2.4 per cent in 2019-20. Fiscal deficit is targeted at 3.5 per cent of the GDP, lower than the revised estimate of 3.8 per cent in 2019-20.

The various allocations in the Budget are put under three heads: 1) Aspirational Budget, 2) Economic Development, and 3) Caring Society. Aspirational Budget includes: (a) Agriculture, Irrigation and Rural Development, (b) Wellness, Water and Sanitation and (c) Education and Skills. Under Economic Development comes Industry, Commerce and Investment; Infra-structure and News Economy. The concerns in Caring Society are: (a) Women and Child, Social Welfare; (b) Culture and

Tourism, and (c) Environment and Climate Change.

4. A Critical Evaluation of the Budget

The Union Budget for 2020-21 is criticised on many grounds. Leading Indian economists like Jayati Ghosh and Surajit Mazumdar criticise the very correctness of the statistics used in the Budget. For example, “...the tax revenues retained by the Centre ...were actually lower than the Revised Estimates by a whopping Rs 1,65,176 crores, or as much as 13.5 per cent of the Revised Estimates of the total tax revenues.”

The Budget is deficient in addressing the slowdown of the Indian economy. The total expenditure of this year’s Budget is Rs 30,42,230 crores. Last year’s Budget had an estimated expenditure of Rs 27,86,349 crores. If we follow inflationary accounting, we could see that there is not much enhancement in total public expenditure. Further, we could notice a still reduced public expenditure of Rs 26,98,552 crores in the Revised Estimates of 2019-20. So the expenditure crunch in the economy cannot be tackled by this year’s Budget.

When we look at the structure of Public Expenditure, we can notice that very little allocations are there to counter the burning issues of the Indian economy. MGNREGS is popularly considered an effective Rural Employment programme to resolve rural poverty. But this year’s Budget allocation is only Rs 61,500 crores as against Rs 71,000 crores in the Revised Estimates of the 2019-20 Budget. Similarly there is inadequate allocation to rejuvenate the ailing farming sector. Indian agriculture could be saved only by promoting processing and marketing. In order to cater to this, we require agro-based industries. There is no such vision in the Budget.

The most important defect of the Budget resides in its revenue side. Disinvestment is proposed as a major source of revenue. On this account, it is expected to generate Rs 2.1 lakh crores. This is definitely an immoral attempt on the part of the government. Already, the tax-GDP ratio is notoriously low for India. This Budget also extends concessions to corporate and middle class taxpayers. Though the Budget deficit proposed in the Budget is 3.5 per cent, it is likely to grow much more and would finally accelerate the inflationary trend in the economy. Borrowing from abroad through the issue of sovereign bonds is considered another source of income. From the experience of the so-called PIIGS countries we understand that this is a dangerous game.

5. Conclusion

The present NDA Government claims to transform the Indian economy to a $ 5 trillion one by 2024 and doubling farmers’ incomes by 2022. But there is very little in this Budget to achieve these goals. The Indian economy is now in the ICU. The medicines applied prior to the Budget and in the Budget are so inadequate to cure the illness. In short, the Union Budget 2020-21 is a disappointing one.

Prof (Dr) V. Mathew Kurian is the Joint Director, K.N. Raj Centre, M.G. University, Kottayam (Kerala).