Bereft of Macroeconomic Vision C. P. Chandrasekhar
Though Finance Minister Nirmala Sitharaman laboured for well over 2 hours when delivering her budget speech, it is likely that the aspect of the speech that will receive popular attention would be the restructuring of income tax slabs and reduction in rates that would benefit the tax paying middle class. That was obviously also the intention of the exercise. Budget 2021-22 was being presented at a critical time for the economy, with growth decelerating sharply, and evidence of adversity not just in the informal economy but in the corporate sector as well. With official data suggesting that, even prior to…
Budget 2020: No sense of direction C. P. Chandrasekhar
Besides its length, Finance Minister Nirmala Sitharaman’s speech presenting the Budget for 2020-21 was notable for a number reasons. It did not discuss the likely shortfall in revenue collection relative to targets during financial year 2019-20 and what that implies for state action. Much of the speech sounded like it was being made on behalf of other ministries highlighting their ongoing or new programmes, rather than on behalf of the ministry of finance. It did not, when discussing expenditures refer to the increase in allocations for 2020-21 relative to the budget or revised estimates for 2019-20, but merely quoted absolute…
Can the RBI fill the Budgetary Hole? C. P. Chandrasekhar
In the search for resources to make up for sluggish tax revenue growth, one source to which the Finance Minister rising to present Budget 20201 can legitimately turn is the Reserve Bank of India (RBI). But the government’s draft on RBI funds cannot be arbitrary, at least for four more fiscal years. The controversy over the principles that would determine how much of its annual surpluses the central bank should retain as its “economic capital”, to deal with risks and contingencies, and how much should be transferred to the government as ‘dividend’ was settled for five years by a Bimal…
The Scramble for Resources C. P. Chandrasekhar
Given the obsession to limit the dressed up fiscal deficit figure and unable to think of better responses to the growth slowdown than tax cuts, it is more than likely that better economic management and ways to address the intensifying stagflation would not be the focus of the Finance Minister’s attention when presenting the next Budget. Objective number one is likely to be a show of fiscal prudence. But, given the recessionary environment, that alone would not do, since there must be some indication of further efforts to stimulate the economy and trigger a turnaround. That needs enhanced spending. Faced…
A Budget that cannot deliver C. P. Chandrasekhar
Speculation is rife on what Finance Minister Nirmala Sitharaman’s second budget will contain and do. It does not take much to speculate on what it is most unlikely to do, which is to substantially hike central government expenditures as a way of reviving demand and reversing the slowdown in growth, which is at its lowest in a decade of around 5 per cent. There are reasons why this is unlikely. To start with, as estimates of tax revenues and non-tax receipts for the first eight months of ongoing financial year 2019-20 indicate, the receipts of the central government are growing…
Nirmal Sitharaman’s Challenge: Budgeting with diminished revenues C. P. Chandrasekhar
It is not the most conducive time for Finance Minister Nirmala Sitharaman to present her second budget. Growth is decelerating sharply, revenues are lagging behind targets, the government’s off-budget transactions that make a mockery of budget estimates are being revealed, and ambitious plans to sell public sector equity are proving difficult to realise. In the event, as the Finance Minister puts together the Budget documents for financial year 2020-21, she faces two challenges. To start with, she must work to provide a credible account of what her government managed to do fiscally in the current year, 2019-20, her first as…
The Valuation Game C.P. Chandrasekhar
The universe of Indian startups is teeming with ‘unicorns’, industry slang for firms with valuations in excess of $1 billion. But most have yet to show the profits that legitimise that valuation, and many are bleeding. That was ignored till New York headquartered WeWork, the leader in the coworking office space business, which was expanding as if there are no limits to the demand for shared office space, hit a roadblock. Now Indian celebrity firms like OYO and PayTM, also backed by Softbank among others, are under the scanner. OYO’s business model was typical of the start-up boom fuelled by…
Revisiting the NBFC Crisis C.P. Chandrasekhar
Even while the effort to resolve the crisis resulting from non-performing assets in the banking sector was underway, India’s financial sector was overwhelmed by failures of large non-bank financial companies. In the discussion that followed the collapse of these NBFCs, the emphasis has been on the absence of due diligence, poor financial management and downright fraud. While the environment these firms found themselves in did encourage such tendencies, there were structural reasons why these institutions accumulated bad assets, which are often ignored. The crisis that engulfed IL&FS and Dewan Housing Finance Limited focused attention on what was India’s numerous but…
A self-made Fiscal Trap C. P. Chandrasekhar
In the revised estimates for 2018-19 reported in Budget 2019, the NDA government had hugely inflated figures on central revenues and expenditures in 2018-19. This was one of many signals that it was faced with a fiscal crisis it did not want to reveal. Matters have only worsened since then. Numbers released by the Controller General of Accounts (CGA) show that, over the months April to October, net tax revenue accruing to the Centre had risen by just 1.1 per cent relative to the corresponding period of the previous year, way short of the inflation rate and the rate of…
Missing the Big Picture: Arvind Subramanian and Josh Felman on the “Great Slowdown” C. P. Chandrasekhar
In the latest of many critical interventions since he demitted office as Chief Economic Advisor to the Government of India, Arvind Subramanian (in collaboration with Josh Felman, together hereafter referred to AS-JF) has argued that the recent sharp deceleration in India’s growth is not an ordinary slowdown, but “India’s Great Slowdown, where the economy seems headed for the intensive care unit.” The paper that makes this assessment goes on to argue that most existing analyses of the slowdown have not got it right, and claims to ‘make a contribution’ by offering “a different diagnosis of the problem” and providing “a…