The setting for the 2022-23 Union Budget was quite unprecedented: Acute unemployment, growing poverty, burgeoning wealth and income inequalities, and accelerating inflation. One expected to find in the budget some measures for stimulating the economy, and also some gesture towards alleviating distress. Such alleviation, even if not used as the primary means of stimulating the economy, could have constituted a set of separate and additional provisions. This was not to be. The budget has been a gigantic non-event, blithely ignoring the economy’s travails and providing neither stimulus nor succour to the poor.
True, the budget envisages a rise in capital expenditure by the government but if we look at total government expenditure, which is what matters from the point of view of aggregate demand, the increase is only Rs 1.75 lakh crore, from Rs 37.70 lakh crore in 2021-22 (RE) to Rs 39.45 lakh crore in 2022-23 — a 4.6 per cent rise. This is even lower than the inflation rate. In real terms, the budgeted total expenditure change is thus negative. Government expenditure as a proportion of GDP is set to decline sharply, entailing a dampening effect on the economy.
Likewise, the provision for MGNREGA, a lifeline for the poor, is pegged at Rs 73,000 crore, lower than Rs 98,000 crore in 2021-22 (RE) and Rs 1,11,000 crore in 2020-21. It would be argued that this being a demand-driven scheme, the outlay can be expanded if necessary. What this argument misses is that such an expansion of outlay takes time, and delayed wage payment in the interim discourages demand. The initial budgetary provision is, therefore, important.
This damp squib of a budget implies that the perverse fiscal strategy the Modi government has been putting into effect of late is allowed to persist. This strategy consists in giving tax concessions to the rich (expecting them to invest more), while restraining the fiscal deficit through higher indirect taxation, notably on fuel. Even in the current budget, the oil price is set to increase for consumers because of the additional excise duty of Rs 2 per litre on unblended fuel.
This fiscal strategy is a perverse one for several reasons. First, it is inhumane, inegalitarian and hence anti-democratic: Its inhumaneness, in contrast to other resource mobilisation measures like a wealth tax, is so appalling that a group of American billionaires on the occasion of the Davos summit expressed their desire for being taxed more so that the poor are spared. Second, it goes against what advanced capitalist countries like the US have been trying to do. The Biden administration’s recovery strategy entails spending more, including on welfare schemes, by resorting to heavier, not lighter, corporate taxation. For this, it has even negotiated an internationally-agreed minimum corporate tax rate to prevent corporates from parking profits in tax havens. Third, it has been a major contributory factor to the phenomenon of inflationary recession that is plaguing the Indian economy. Raising fuel taxes raises prices in general and since the money incomes of the working people do not increase in tandem, there is a reduction in real demand, and hence a recession. Fourth, precisely because of this recession that develops, the increase in private corporate investment, that had supposedly constituted the justification for such tax concessions, does not materialise: On the contrary, the larger unutilised capacity in existing units, that arises because of the recession, causes a curtailment in private investment.
This perverse fiscal strategy, which one hoped would be abandoned in the current budget, continues even as the government itself admits that private investment is unresponsive to tax concessions which is why it has decided to increase public investment hoping that it would “crowd in” private investment.
