The Narendra Modi government on Monday decided to drop all pretence of fiscal rectitude by seeking to spend its way out of a pandemic-induced economic crisis with a Rs 34.83 lakh crore expenditure programme that failed to impress industry, farmers or investors — and was later heavily panned by political rivals.

Finance minister Nirmala Sitharaman’s claim that she would cobble together a historic budget rang hollow after the government chose to turn cautious and projected a nominal GDP growth of 14.4 per cent, which assumes that the Indian economy would swell to Rs 222.87 lakh crore by March next year.

The estimate fell short of the 15.4 per cent nominal GDP growth that chief economic adviser Krishnamurthy Subramanian had projected in the Economic Survey for 2020-21, presented just three days ago.

The National Statistical Office had estimated nominal GDP in the current fiscal at Rs 194.82 lakh crore in its first advance estimate presented on January 7 — reflecting a 4.2 per cent economic contraction this year in current prices. Real GDP, which strips out the impact of inflation, is expected to contract by 7.7 per cent this fiscal.

The Modi government has decided to shake off the straitjacket that the Fiscal Responsibility and Budget Management Act (FRBM) of 2003 places by mandating adherence to a 3 per cent fiscal deficit target by March 2021.

The fiscal deficit has ballooned this year to 9.5 per cent, or Rs 18.48 lakh crore, and will stay way above the target at 6.8 per cent next year (Rs 15.06 lakh crore).

More important, the government hopes to bring fiscal deficit under 4.5 per cent by 2025-26 — which means that late finance minister Arun Jaitley’s promise in his 2017 budget to strive for fiscal prudence and his refusal to trigger the escape clause from the mandated glide path has now been thrown into the dustbin.

Sitharaman has not only activated the escape clause this year — with the pandemic serving as a legitimate ruse — but also promised to amend the FRBM Act itself, clearly falling for the argument spun by certain Right-wing economists who have been urging the government to pump-prime the faltering economy without worrying about the consequences.

Result: The gross borrowings of the Centre will swell to Rs 12.05 lakh crore next year, about 5.8 per cent lower than the revised estimate of Rs 12.8 lakh crore this fiscal.

Farm cess

The big talking point was the imposition of an agriculture infrastructure and development cess (AIDC) on items like apples, peas, lentils, industrial alcohol, chemicals, silver and cotton from which the government hopes to raise Rs 30,000 crore.

The fund will be used to build post-harvest infrastructure in the mandis — and is being seen as a feeble attempt to win over farmers who have been outraged by the reforms in the agriculture sector last year which, they believe, will ruin their lives and livelihoods once giant corporate juggernauts roll into their tightly controlled backyard.

The government also offered to raise agriculture credit by about 10 per cent to Rs 16.5 lakh crore. But the twin blandishments failed to assuage the restive farmers who remain huddled on the borders of Delhi.

Bengal finance minister Amit Mitra slammed the agriculture cess as an “anti-federalist measure” with the dice clearly rolled against the interests of the states.

The Centre does not share revenue collected under any cess with the states.

Mitra said: “The share of cess to gross tax revenue had already reached 16 per cent. With the introduction of the new farm cess, the share is set to go up further. This means that the share of the states to the gross tax revenue will go down.”

The states stand to get Rs 6.65 lakh crore as their share of funds from the divisible pool after the 15th Finance Commission retained the old devolution formula under which the states get 41 per cent of the proceeds. But this means the states will receive only slightly more than the Rs 6.5 lakh crore they got in 2019-20, the pre-Covid fiscal.

Tall talk, no sops

Industry, investors and taxpayers squinted over a stack of documents in a futile attempt to find tax breaks and incentives in a lacklustre budget.

The stock markets soared by around 5 per cent, chuffed by the fact that there were no real gremlins in the budget as Sitharaman chose not to make any changes in personal and corporate taxes. The bellwether Sensex rose 2314.84 points to close at 48600.61 while the NSE’s Nifty 50 leapt 646.60 points, or 4.74 per cent, to 14281.20.

“We never considered tax changes while preparing the budget,” Sitharaman said in a television interview. “It was never on the table.”

The buffet of options that the Modi government chose to fill its plate with included a plan to set up an entity that will take some of the toxic loans off the banks’ balance sheets, a move to raise the foreign direct investment limit in the insurance sector to 74 per cent from 49 per cent currently, a Rs 20,000 crore plan to recapitalise public sector banks, and another stab at a very ambitious divestment plan from which it hopes to garner Rs 1.75 lakh crore.

The government had budgeted for Rs 2.1 lakh crore from disinvestment this year but was able to raise only Rs 32,000 crore.

The privatisation plan does not stop there: the government intends to monetise the surplus land assets with public sector units either through a direct sale or concessionaire agreements with the private sector.

It also aims to sell off state-owned enterprises that do not fall within the four corners of a very narrowly defined strategic sector comprising four corrals: atomic energy, space and defence; transport and telecommunications; power, petroleum, coal and other minerals; and banking, insurance and financial services.

“In non-strategic sectors, the central public sector enterprises (CPSEs) will be privatised; otherwise (they) shall be closed,” the government said in an annexure to Sitharaman’s speech.

There are more than 340 CPSEs and the cavalier announcement in the budget casts a fog of uncertainty over the future of many of them that do not qualify as strategically important for the Modi government.

Sitharaman said the 12 major ports in the country would start parcelling out some of their operational services to a private partner that will manage them. To start with, seven projects worth more than Rs 2,000 crore will be offered under the public-private partnership mode next year. This opens the doors for a corporate group that is believed to be close to the Modi government and styles itself the country’s largest operator of ports.

The government also announced a voluntary scrappage policy for automobiles that fell way short of what the stressed sector has been demanding in an effort to crank up sales. It raised healthcare spending by Rs 2.2 lakh crore to partly pay for a Covid vaccination drive, and also increased customs duties on certain gems and jewellery, specified auto parts, printed circuit board assemblies, wires and cables, solar inverters and solar lamps.

Import duty on naphtha, iron and steel melting scrap, aircraft components, and gold and silver have been reduced.