The finance minister is looked upon as the navigator of the economy. There is a difference: while a ship has to be steered every minute, economic policies should not be changed too often: it would create too much instability and uncertainty. Hence arose the custom of making major course corrections once in a year.
But those who see his job thus must be completely bemused by the performance of our finance minister. Either he thinks that navigation of the economy is child's play, or he has no idea how to do it. He sits on the floor above his chief economic adviser, but they may as well be living on different planets. Just two days before the budget, he tabled his CEA's Economic Survey. It has a fascinating chapter on public finance. It shows that compared to the rest of the world, India's ratio of revenue from direct to indirect taxes is extremely low. He made the same point last year also. But the finance minister could not care less. Demonetization forced thousands of people who lived in a cash economy to deposit their money in banks and, thereby, brought them into the formal economy. The Central Board of Direct Taxes could count them, and bring them into the tax net. But the budget shows the prospective increase in personal income tax revenue to be only 16 per cent - just about normal. The Survey also showed that state and local governments collected only a fraction of taxes on land and property that they could. Is the finance minister likely to nudge them into activity? There are no signs that he would.
His speech was entirely devoted to populist schemes. To his credit, he introduced no new schemes; the hundreds of schemes he finances kept him busy enough. Even the healthcare and wellness scheme he announced is a revamped version of one he mentioned last year. The prime minister also mentioned it on Independence Day. No doubt we will have more mentions - and who knows? Some action some day.
Promise, promise, do nothing: that has been the reputation of many a finance minister. Stung by it, P. Chidambaram introduced the outcome budget in 2005. Jaitley did not mention it, but he tabled it in Parliament; it is a revealing document. It is littered with strategy papers, draft notes, meetings called and so on. There are a myriad outcomes - all in Delhi, all in words.
Anyway, leaving the finance minister to revel in his munificence, let me look at the key budget numbers. The changeover from value added tax to goods and services tax is going to be a money spinner for the finance ministry, because the lure of getting credit for tax paid by their suppliers is going to bring thousands of small businesses into the tax net. The budget reckons that the Centre's revenue from indirect taxes will go up from Rs 9.4 to Rs 11.2 trillion in the coming year. That gave the finance minister considerable leeway. He had no difficulty in resisting the temptation to reduce taxes; general elections are coming, so he showered money on vote-buying schemes.
He will have to give states Rs 515 billion for the revenue they lost on account of the introduction of the goods and services tax; he also decided to shell out Rs 450 billion on interest rather than to repay loans. He has provided Rs 211 billion for pensions. He has allocated Rs 291 billion to food subsidies. But do not expect food to become cheaper, for the subsidy will mostly go to producers in the form of minimum support price; it would not be surprising if the government goes beyond cereals and tries out price support in other agricultural commodities. Agricultural price support is a stupid policy: it raises prices and makes those products internationally competitive. India produces too much rice; but exporting the surplus is difficult without government subsidies.
The finance minister, to his credit, has increased allocations to capital expenditure. Quite a bit - Rs 156 billion - will go to the armed forces for Mirage 2000s, T-90 tanks and so on; the police will get Rs 52 billion more. Although most of the policemen belong to states and cities, they are often overwhelmed by local hooligans of high, low or middle castes; the Centre has to rush its police to help them. And then there is Kashmir, where the only languages the Central government knows to talk to its youth in are the bullet and the pellet. They may be cheaper in the short run, but they are still quite expensive in terms of lost lives and gained enemies.
Luckily, civil projects will get Rs 207 billion more. Roads will get a lot, railways will get money for conversion to broad gauge, and there will be investment in management and technology institutes. Education is one industry in which India has a comparative advantage; but it does not extend to scientific research and technology. If intelligently directed, money can yield good returns in this field. While India has at last achieved almost 80 per cent literacy, the quality of school education remains mediocre; here too, investment in quality improvement is required. But in education as elsewhere, the finance minister exhibits amnesia. In 2016, the government created HEFA - a higher education finance agency. Now, he has announced a new RISE - revitalising infrastructure and systems in education - and promised it rupees one trillion in the next four years.
When he came to power, he had criticized the preceding Congress regime for the multiplication of schemes. It is fair to be critical as long as one learns to avoid the same mistakes; Jaitley has some scope for learning. He may well get the time to do so; if his massive investments in vote-buying schemes pay off, his party will return to power in 2019. But it is better not to make mistakes than to learn after making them, for the costs of the finance minister's mistakes are paid by the people.
