Our Republic has features that are both
federal as well as unitary. But in fact, it has numerically and qualitatively
many more features that give an edge to the authority of the Union Government.
These include, no separate State constitutions, more items on the Union List
than the State List, and even empowering the Union Government to legislate on a
particular State subject, if two or more States request it. Therefore, the
Constitution has more accurately been described as “federal in form and unitary
in spirit”. That is why it is called quasi-federal in nature. Our Constituent
Assembly recognized that a vast country needs much devolution of authority
for governance to be practical, but at the same time the Union Government must
have the necessary powers to keep matters from spiralling out of
control. However, the tone and tenor of140 some domestic commentators often wrongly insinuates the
concept of federalism as being a one-way street, with the emphasis only on160 devolution of authority, as if the powers of the Union are
somehow subservient, or not intended to be exercised. In reality, it
works both ways. The quasi-federal nature of our Constitution has sometimes
been called “cooperative federalism,” recognizing the inherent interdependence
of the Union and State Governments. Thus, in the wake of years of rising inter-State
crime and terrorist attacks, a dozen years ago there was general consensus on
the need for concerted national resources to be devoted to it. This led
to the formation of the National Investigation Agency. Indeed, that has
yielded dividends, with the agency playing an important role in drastically
curbing terror attacks and investigating major crimes. It is ironic that
after so many years, and280
after largely succeeding rather than failing, the establishment of National
Investigation Agency is suddenly faced with a legal challenge, and that too, by
a State which is now governed by the very party that legislated it when it ran
the320 Union Government. It is perhaps no
surprise that States governed by it are also threatening to not implement CAA,
despite it being a Union subject, and this very amendment having been
specifically advocated in 2003 by the party.
Modern
day Economic Surveys have transitioned into a hybrid of a health audit of the
economy and an idea generator for the future. There are three ways to look at
them. The first is in terms of numbers. The state of the economy as
analyzed by the Economic Survey for 2019-2020 says that the economy may have bottomed
out some time in420 the second half of the current financial
year, and that next year will be better, with the economy growing by 6%. Sure,
the Survey has got numbers wrong before. For instance, last year’s Economic Survey
projected a growth of 7% this year. Still, it is true that some high-frequency
indicators have turned for the better in recent months. At least480 some of the measures
announced by the Finance Ministry in the past six months to boost growth
should kick in next year. Surprisingly, the Survey lays the blame for the
slowdown the Indian economy has witnessed over the past six quarters to global
and cyclical factors. In truth, there is likely a significant structural
component to the slowdown too, just as there are several domestic factors that
have contributed to it. Among other reasons, some economists may also pick
holes560 in the Survey’s defence
of India’s GDP numbers, which have had their credibility dented by the former Chief
Economic Advisor’s treatise on how they are overstated.
The
second way is in terms of big ideas to address pressing challenges — the
creation of jobs, the poor health of State-owned banks, the funding of
infrastructure, the disinvestment of State-owned companies and so on.
There, Economic Survey is a cliched mixed bag. Creating 80 million jobs over
the next decade by following the640 Chinese model and becoming the factory of the
world and a key node of global supply chains is more an aspiration than a
solution. But a model like Singapore’s Government-owned investment company Temasek
to speed up divestment is a good plan. The idea is that the Government will
transfer its holdings to this company, which will manage them with a700 degree of autonomy,
divesting appropriate bits as the opportunity arises. The Survey’s analysis
that State-owned banks lost 23 paise of every rupee invested is worrying, but
it is not clear whether technology and incentives, as recommended, will be
enough to address this. The third way is the direction which the Economic
Survey seems to be suggesting for the country’s financial policies,
both in the immediate Union Budget and in the long term. On that count,
the Survey cannot be faulted. It recognizes the need to allow some relaxation
in the fiscal deficit target for the current year as some experts800 have suggested. Reviving
growth should be the primary priority. As for the broader philosophy, the Chief
Economic Advisor has said the theme of the Survey itself is “wealth creation”,
which is dependent on a pro-business policy, competitive markets, and the840 absence of Government
intervention which sometimes undermines the market’s ability to create wealth.
A welcome addition, which is not in the Survey, would be respect for the lawful
wealth creation process, and would entail reining in tax authorities and
investigative agencies from adventurism and ensuring continuity in rules,
including those governing foreign investment.
When Finance Minister
Nirmala Sitharaman arose to present the Union Budget in Parliament, she
had to address several challenges. The first had to do with the numbers. There
were ambitious estimates that failed to materialize; there was a certain
over-zealousness in burying reports with inconvenient data; and there
were critiques, even from people who were once part of the system. All these
combined to create a fundamental960 distrust of
macro-numbers. Given that the economy grew by 4.5% in the quarter ending
September, the second challenge was to980 revive growth across
dimensions — urban and rural; investment and consumption; industry and
agriculture. She had to do this with limited fiscal headroom. The third challenge
was to improve consumer and investor sentiment. The fourth was to create jobs
for an economy, which has the largest number of people in the
productive age group of 15 to 65. The fifth challenge was to not do anything
that would erode the Bharatiya Janata Party’s political capital.
How did she do? For
starters, the Budget numbers seem, in most part, honest. For a Finance Minister
to admit that nominal growth in 2020-21 would likely be 10% is a clear
admission that there are headwinds to growth. The Budget Estimate for
tax revenue in 2020-21 is around Rs. 38,000 crore lower than last year’s Budget
Estimate, although it is higher than the Revised Estimate1120 by around Rs. 2.6 lakh crore. The numbers may be considered
ambitious, but they are still plausible. Further, by evoking the trigger clause
of the Fiscal Responsibility and Budgetary Management Act, the Finance
Minister has admitted what was an open secret. The numbers do assume some
revenue growth, but the biggest boost on that front is expected to come from
disinvestment. With substantial work already done on the disinvestment of some
companies, the process kicking off in Air India, and the plan for an initial
share sale in the Life Insurance Corporation, this number is also plausible.
On the growth front,
it can be argued that this Budget’s promise is not what will be termed a
“dream” or a “big bang”. These were the terms previously used to describe
budgets. That is because it does not have one big idea, 1260 such as the corporate tax cut that was announced outside
the Budget cycle, or the creation of a bad1280 bank, but a multitude of small ones, focused on specific sectors. There
is a 16-point plan for agriculture, but it doesn’t seem to involve any
substantial increase in funding. There is a plan for infrastructure, which
involves attracting sovereign wealth funds with significant incentives, and
also using proceeds of divestment. There are other similar small measures
aimed at start-ups, non-banking finance companies, and others. But much of
growth will still be powered by Government spending. This has increased,
from a Budget Estimate of Rs. 27.86 lakh crore in 2019-20 to Rs. 30.42 lakh
crore. The two most important things the Finance Minister has announced in this
regard are the tax cuts for people earning less than Rs.15 lakh, and a tax1400 charter that gives taxpayers rights, including freedom from harassment.
The fact that taxpayers have a choice of choosing between the old regime and the
new one complicates the process to some extent, but the Finance Minister has
said that1440 the aim is to move towards a
regime with no exemptions and that is welcome.
There is not much in
the Budget by way of efforts that will directly create jobs. Since it is
now clear that jobless growth is a real concern, it cannot be said with any
level of certainty that an economic revival will automatically create
more jobs. The BJP seems to have acquired the ability to drown out unpleasant
economic news with sharp political messaging. With at least some experts
expressing the opinion that the economy has bottomed out and that the
worst is behind it, this Budget is unlikely to hurt the party politically. That
is not a bad report card for a Budget presented in an inconducive macro-economic
environment with little fiscal headroom. This continuation of measures
announced by this Government since September is impressive. But the numbers,
however plausible they may be, still need to pan out. 1595
