It is ironic that the author of the ‘Dream Budget’ of 1996, P Chidambaram, has called the Budget 2022 presented by Nirmala Sitharaman ‘most Capitalist’
Times change, people change, and politicians change parties. Yet, it is ironic that the author of the “Dream Budget” of 1996, Palaniappan Chidambaram, has called the Budget 2022 presented by Nirmala Sitharaman “most Capitalist”. Politicians are known to make a virtue out of U-turns. But Chidambaram is no ordinary politician, even though he has oscillated between parties in the past. Therefore, his criticism merits deeper consideration.
Before digging the scalpel into Sitharaman’s Budget, it might be instructive to briefly revisit the contours of the 1996 Budget. Chidambaram was then the finance minister in the short-lived coalition government under HD Deve Gowda, as a nominee of the Tamil Manilaa Congress. The impetus of 1991 was beginning to wane and the economy needed fresh momentum. In a sense, Chidambaram’s 1996 Budget was the original ‘booster-shot Budget’.
Chidambaram lowered the maximum marginal income tax rate for individuals to 30 percent from 40 percent, and reduced the income tax rate for domestic companies to 35 percent from 40 percent. He introduced a change in the Minimum Alternate Tax (MAT) regime, whereby companies were allowed to be carried forward MAT credit for a period of five assessment years.
The 1996 Budget also increased the limit of FII investment and laid the ground for the first round of disinvestment in PSUs. Peak customs duty was reduced from 50 percent to 40 percent, and the excise duty structure was simplified.
Furthermore, Chidambaram introduced a bold Voluntary Disclosure Scheme that offered immunity “from any action under the income-tax, Wealth tax and Foreign Exchange Regulation Acts”.
Looking back in retrospect, “one of the biggest long-term impacts of the Dream Budget has been on income tax collections, which grew from Rs 18,700 crore in 1997 to over Rs 2 lakh crore in 2013” commented an analyst.
Though Chidambaram’s colleague in the Congress, Rahul Gandhi, has a different view on tax collections, this statement rings a bell when Sitharaman talks of increased tax revenues (especially GST) by broadening the tax base and compliance under her watch.
देश की जनता टैक्स वसूली के बोझ से परेशान है जबकि मोदी सरकार के लिए ये टैक्स की कमाई एक बड़ी उपलब्धि है।
नज़रिए का अंतर है- उन्हें जनता का दर्द नहीं सिर्फ़ अपना ख़ज़ाना दिखता है।#EconomicSurvey2022
— Rahul Gandhi (@RahulGandhi) January 31, 2022
However, the similarities do not end there. There were several provisions in the 1996 Budget for the rural sector that bear a striking resemblance to some initiatives of the Narendra Modi government in recent years. The Budget contained proposals for the setting up of Rural Local Bank, Rural Infrastructure Development Fund (RIDF) and state-level agriculture development institutions. These schemes were intended to promote investment in commercial or high technology agriculture and allied activities such as horticulture, floriculture and agro-processing.
Turning the pages of history one cannot but feel a sense of déjà vu and wonder what it is in Sitharaman’s Budget Speech that earned it the label of being “most capitalist”. If it was indeed so certainly the stock markets did not pick up the cues. By the time Chidambaram finished his Budget speech in 1996, the Sensex had risen by 6.5 percent. In comparison, the reaction of the stock market to Sitharaman’s Budget was at best lukewarm. The business community appeared cautiously optimistic rather than overjoyed.
The main criticism of Sitharaman’s Budget has been for not putting more cash in the hands of the people. Personal Income Tax was left untouched. Some felt this was an opportunity missed as lowering personal income tax would have given a fillip to consumption. But, the government was equally conscious of triggering inflation with input cost pressure being felt across many industries due to international market conditions for many commodities. Oil is again on the boil. Chip shortage and other dislocations in global supply chains raising uncertainty quotients in the manufacturing sector. Besides, with only thirty million people paying Income Tax in the country, it is indirect taxes that affect the majority. The government can, perhaps, use any spare fiscal elbow room for rationalising GST rates that has for long been on the anvil.
With important state elections around the corner and others due later in the year, there was a widespread expectation of freebies and sops in the Budget. Narendra Modi has always believed in targeted delivery of benefits rather than doles which by definition are inefficient and have a high waste factor. This has stood the Modi government in good stead both in its first term and during the pandemic for schemes like PM Garib Kalyan Yojana.
Hence, Sitharaman’s Budget proposals focused on capacity creation in terms of infrastructure, connectivity (Gati Shakti), health and education (with a high weightage on digital outreach for the latter). How soon these investments will be converted into jobs and income can be debated and will be largely a function of implementation. That is the challenge the Prime Minister seems to have taken on for himself.
The Modi government has probably received less credit than it deserves for eschewing populist impulses and staying on course of its longer-term economic road map. People may have serious differences with its vision but the Modi administration cannot be faulted for faltering under pressure. Even at the start of the pandemic the Reserve Bank of India and the finance ministry opted for prudence over panic — keeping the powder dry for contingencies.
This was visible not only with regard to fiscal stimulus but the most courageous decision to rely entirely on domestically manufactured vaccines withstanding enormous lobbying by global pharma giants. The gambit appears to have paid off as evident from the GDP projections that put India as one of the fastest-growing among the major economies of the world.
This Budget is consistent with the roadmap spelt out in the Economic Survey. The strategy is clearly to remain agile and keep room for manoeuvre in a super VUCA post-Covid world. There can always be two views on what more could have been done and on whether the glass is half full or empty. But dreams do not turn into reality overnight, as we know from circa 1996.
The author is a current affairs commentator, marketer, blogger and leadership coach, who tweets at @SandipGhose. Views expressed are personal.