While the Union Budget is being widely lauded for its pro-rural stance, Sudipto Mundle, emeritus professor and member of the board of governors of the National Institute of Public Finance and Policy, has a different take. According to Mundle, a deeper analysis of the budget reveals that it has ignored long-term public spending in the rural sector.
"The striking feature of this year's budget is that the entire rural spending is part of the revenue or current expenditure, while that from the capital expenditure is negligible," said Mundle as he addressed the 18th annual Budget lecture organised by Malayala Manorama, in Kochi.
Revenue spending is the operational or shorter-term expenditure incurred in the day-to-day management of an economy, while capital expenditure is the longer-term investment that an economy makes for the future. Mundle's observation comes as the government boasts of a record increase in rural spending, at about Rs 1.87 lakh crore or 24 per cent more than last year's budget allocation.
While there has been a modest increase in the overall expenditure of the central government, there is a visible neglect of the social services segment, at just five per cent of the total spend, he said.
Mundle, who was also a member of the 14th Finance Commission, observed that the Centre's demonetisation exercise proved to be a "disastrous administrative failure". The impact of demonetisation is not expected to continue for long as cash is slowly coming back to the system. However, it would be difficult to reverse the adverse effects it has brought about in small and medium businesses, agriculture and rural segments. He said demonetisation, coupled with the Goods and Services Tax, when implemented, will be the most far-reaching economic reform after 1991.
He welcomed the government's move to halve the tax rate for those in the Rs 2.5 - 5 lakh range. However, the Budget has failed to justify how the Centre is going to cover up the two per cent tax bouyancy in the corporate tax segment.
The tax concessions given to the small and medium business sector, benefitting about 96 per cent companies in the segment, is a move in the right direction. He, however, added that private investment continued to stagnate despite continuous efforts from the Centre to boost the India picture.
There was no surprise element in the fact that the government continues its infrastructure push with the combination of telecom, energy, communications and railways taking away as big as 56 per cent from the capital expenditure. Interestingly, most of these have been confined to the telecom and railways sectors, while most of the investments in the energy and communication segments have been left for the private sector.
The current government has actively followed up the digitisation efforts initiated by the previous UPA government. "There is a concerted drive against black money and cash transactions," Mundle said.
However, he was quite disappointed to note that a broader reform agenda is largely missing from the Budget. The government has completely ignored issues like bad loans and bad balance sheets of the corporates. The Budget also missed redistributed initiatives. "Sustaining a robust growth requires eradicating inequality," he noted.