The road to private dominance
Central to the economic strategy of the government seems to a massive hike in private domestic and foreign investment, combined with a set of schemes aimed at appeasing the peasantry, medium and small industry and the marginalised.
Early in her budget speech, Finance Minister Nirmala Sitharaman made clear what the foundation of the second Modi-led BJP government’s economic strategy would be. She declared: “India Inc. are India’s job-creators. They are the nation’s wealth-creators. Together, with mutual trust, we (the government and private capital) can gain, catalyze fast and attain sustained national growth.”
If that be the understanding it is not surprising that the main plank of the budget was “to propose a number of initiatives as part of a framework for kick-starting the virtuous cycle of domestic and foreign investments.” India has gone a long way with liberalisation over the last three decades. But Budget 2019-20 is a declaration that the era of private dominance has arrived.
Central to the economic strategy of the government seems to a massive hike in private domestic and foreign investment, combined with a set of schemes aimed at appeasing the peasantry, medium and small industry and the marginalised. A substantial part of the investment is expected to be directed to the infrastructure sector, where the government estimates investment requirements of Rs 100 lakh crore over the next five years.
Much of this is to come from private investors who would be supported by the government with more financial liberalisation, credit guarantee schemes, support through public private partnerships, and special incentives for both foreign financial as well as direct investors. Debt too is to be encouraged with “an action plan to deepen the market for long term bonds including for deepening markets for corporate bond repos, credit default swaps etc., with specific focus on infrastructure sector”.
Relaxed norms for mobilising capital in financial markets with instruments that are opaque are known to be risky, the global financial crisis that was triggered by unregulated finance and opaque instruments may be far away, but India’s own NBFC crisis is quite telling. But in the desperate search for growth within a “business friendly” environment, instability is not on the radar.
But even if the path is to be paved for the private sector to rise to dominance, the state cannot wither away. And given the claim that growth would be inclusive, it must fall on government to find ways of redistributing the benefits of growth mediated by “mega-projects” in which rural India, medium and small business and the marginalised cannot participate. But the evidence that the government will find ways of either directly contributing to enhanced growth or help deliver welfare gains is absent in the budget.
Total expenditure of the central government which rose from 12.7 per cent of GDP in 2017-18 to 13.2 per cent of GDP in 2018-19, would remain at 13.1 per cent of GDP in 2019-20. The corresponding figures for capital expenditures in the budget are 1.6, 1.7 and 1.6 per cent respectively. A similar situation prevails with regard to allocations for the government’s social welfare schemes.
If we take the six major schemes labelled “core of the core schemes” (including the National Social Assistance Programme and the Rural Employment Guarantee Programme), nominal allocations, which amounted to Rs. 84,361 crore in 2018-19 as per the revised estimates are projected to fall to Rs. 81,863 crore in 2019-20. In the case of the MGNREGA budget allocations for 2019-20 at Rs. 60,000 crore is lower than even the inadequate Rs. 61,084 crore spent in 2018-19.
Even to finance this the government has been forced to fall back on two of its favourite devices. The first is to tax the common man who, for example, in a period when oil prices are rising once again, would be taxed to the extent of an additional Re 1 per litre on both petrol and diesel. Since oil is used for multiple purposes, it would also drive up the prices of other commodities and services.
The second is to sell public property. The Finance Minister expects to raise Rs 1.05 lakh crore from disinvestment and privatisation in 2019-20, up from Rs 80,000 crore raised in 2018-19. Some of the best assets are to be sold through the strategic sale route in which management control is to be handed over to the private sector. To facilitate the rise to dominance of the private sector the government has also decided that it would reconsider its view that it should hold a majority stake of at least 51 per cent of equity in public sector enterprises. It would contribute to equity as much as needed to support the private sector and sell the rest, while handing over control of the enterprise to private management.
Needless to say, none of this is new. It is in keeping with the big-business friendly strategy that the first Modi government vigourously pursued. More than an hour and a half of Finance Minister Nirmala Sitharaman’s maiden budget speech was largely devoted to underlining what she claims are the great economic achievements of the previous government. And the vision she presented was the same as the Vision of the Decade spelt out in the speech of the acting Finance Minister who presented the interim budget before the election.