Image Courtesy – Satish Acharya
Article By Kobad Ghandy
Amidst a slowing world and turbulent economy and growing big power rivalry, India strives to keep its head afloat above the water.Internationally, the largest economy in the world, the US, is in decline (growth rate of real GDP in 2024 projected at 0%), the EU and Japan are stagnant; the only motor of growth is the China-Russia axis, which too is not too sound. Citizens Bank failed in November last year- the 5th US bank to fail in 2023. The US has raised bank interest rates too tothe highest ever amount of over 5%. In 2008 losses in US and EU banks was one trillion dollars ($1 trillion); in 2023 there was a record loss of $114 bn in US banks{while in 2015 there were profits of about $ 105 bn}.
In the EU growth rate was 0.1% in 2023; while in Japan the economy shrank by 0.7 % in 2023 after shrinking continuously in the previous 4 years (2022 -1.1%; 2021 2.1%; 2020 4.8% and 2019 0.4%) World GDP growth in 2023 was 2.7% – the lowest since the global financial crisis of 2008/09. [2.5% growth is said to be the benchmark of a recession]
The western economies are witnessing a 2008-type scenario. 90% are losing faith in the social contract where all aspects of their lives are going from bad to worse. While the average world growth rate in the 20 years before 2007 was 2.2%; for the past 20 years it has averaged 0.9%.
In this scenario it is not surprising that the BRICS (growing as an alternative bloc to NATO) has just announced its decision to ditch the $ as the international currency and has recently taken 5 new members, including South Africa, Iran and the UAE. In the BRICS meeting in Russia it has decided to leave the SWIFT System [SWIFT is a vast messaging network, banks and other financial institutions use to quickly, accurately, and securely send and receive information, such as money transfer instructions]. Russia-China announce an independent financial system. At least 20 more countries have applied. This scenario is resulting in a changing world order – the first time since WWII. China particularly is becoming the biggest economic power in the world – $ 18 trillion in 2022to the US’s $ 28 trillion today (2024) to India’s $ 3.9 trillion today (it is said in PPP terms China has already surpassed the US).
It is within this international scenario that we need to view India’s economy and its budget. But before we turn to the actual budget analysis, we must understand what really is a budget and the necessity for one. A budget is nothing but the government’s intention as to how it plans to run the economy for the coming year – i.e. where it plans to get its resources and where it will spend it. In most of our budgets the expenditure exceeds the revenue and this results in what is called deficit financing. These deficits can be made upin two ways- first by printing notes and second, by borrowings. The first is inflationary as it results in excessive money chasing limited goods; the second, results in growing debt – both internal and external – on which interest has to be paid. Growing interest payments results in an extra burden on the economy. Deficits are therefore harmful in either or both ways; yet deficit financing is considered the norm these days.
But before coming to the budget let us look at the state of the economy. Despite official data showing the economy growing at 8.3% in 2023-24, evidence suggests a slowing down in demand. In 2023-24 demand is estimated to have grown by a mere 4% – a steep decline from the 11% in 2021-22. Much of this slowdown is attributed to economic distress in the rural areas.
Though the govt has continuously increased its investment on the infrastructure, growth in private investment has continued to be weak, with no signs of things likely to turn around soon. Also on the exports front merchandise exports fell by 3% in dollar terms during 2023-24. The demand slowdown has created a job crisis – according to the CMIE by June 2024 India’s unemployment rate had increased to 9.2% from the 8% in 2023. None of the problems of employment, healthcare, education and private investment have been addressed in this budget.
Expenditures to key heads are increased just to cover inflation, like agriculture, infrastructure and MNREGA has actually received 5% less in real terms; health care has seen a growth of mere 0.3% in allocations, which is unlikely to be spent as earlier.
Agriculture, as usual, received the same step-motherly treatment and rural distress continues apace without being addressed. More dangerous the FM did mention that the government was working on some structural reforms – but did not outline their nature. Now let us turn to the actual budget:
Besides there is a systematic shift from unorganized sector to the organized sector. The former is the main source of employment which is being continuously hit, resulting in a massive growth in contract labour.
The Framework
There is nothing specific about this budget. Routine – much the same trend has continued in earlier years: allocation to agriculture continues to be low; key schemes continue to decline; maximum hit is the middle classes though it claims to speak on their behalf (the rich are generally not touched and the poor are too poor to extract anything more); it coined a new term – neo middle classes (to identify the lower middle classes); the maximum has been given to AP and Bihar so that the parties there continue to support the central government in power by bribing the two states with funds; and, finally, freebies continue for their industrialist billionaire friends.
The Revised Estimate of the total expenditure is Rs 41.9 lakh crore, of which the capital expenditure is only about Rs 7.3 lakh crore – which alone promotes development. Of the total, the largest share goes to interest payments at a massive Rs.11.6 lakh crore and defence another R. 4.5 lakh crores; leaving a mere Rs.2.5 lakh crore for agriculture and 1.2 lakh crore for education. Salaries and pensions is a huge Rs. 4 lakh crores, promoting an increasingly fat bureaucracy; leeches, that live off the blood of our people.
Total receipts, excluding borrowings, are projected at a mere ₹32.07 lakh crore, leaving a fiscal deficit of 6.4 per cent of GDP; well above the budgeted figure of 4.5%. This generally tends to increase as the financial year comes to a close. In other words, mere interest and defence expenditure is half of the total receipts. Unsustainable!!!
Agribusiness to Fore
The allocation for agriculture and allied sectors as a percentage of the total Budget has been continuously declining from 2019 onwards from 5.44 per cent to the present 3.15 per cent. When compared to the 2022-23 actuals there is a decrease of 21.2 per cent in allocations for agriculture and allied activities. There is no step to ensure assured procurement of crops at C2+50%, zero increase in allocation for MGNREGA, PM-KISAN, PMFBY over the Interim Budget.
The Budget keeps allocation for MGNREGA at Rs. 86,000 crores of which in 2024-25 Rs. 42,000 crores have already been spent (including pending dues). This leaves only Rs. 44,000 crores for the remaining eight months.
There is a massive decline of about 24.7 per cent in allocation to crop husbandry. There is also a huge decline by about 34.7 per cent in allocation for fertilisers when compared to the 2022-23 actuals, which amounts to a decline of Rs. 87,238 crores. This will have a deleterious impact on agricultural productivity.
In pursuance of its moves to allow inroads to big predatory agribusinesses like Bayer, Amazon etc. in the Public Sector Agricultural Research Institutions, the finance minister in her Budget speech said funding will be provided in challenge mode, including to the private sector. The direction of agricultural research will gradually be decided by these private companies
The plan to bring details of 6 crore farmers and their lands into the farmer and land registries can have very serious implications. Such centralised digital registries are prone to breach of confidentiality, as has been exposed time and again with initiatives such as Aadhar, and can open the doors for land grabbing by corporates and other unscrupulous agents.
The proposal to undertake a digital crop survey for Kharif using the DPI in 400 districts is also a cause of serious concern. The replacement of crop-cutting experiments with digital and remote-sensing technology have been disadvantageous to farmers, as these are routinely manipulated to serve the interests of insurance companies
It is notable that the pre-budget Economic Survey already spoke of low growth rate of merely 1.4 per cent of the agricultural sector in 2023-24 when compared to 4.7 per cent in 2022-23 by citing the drop in production of foodgrains due to delayed and poor monsoons caused by El Nino.
Big Business & Political Sops
Meanwhile big business is booming. ICICI Bank Q1 profits rose a massive 10% to Rs.11,696 crores or nearly Rs.130 crore per day!!!Punjab National bBank recorded its highest ever quarterly profits at Rs.3,252 crore in the Apr-Jun 22025 period; whilePepsio Apr-Dec 2023 profits was a massive Rs.217 crores. Inspite of this the govt continues to give concessions to big business. Over the last five budgets the FM has gifted Rs.8.7 lakh crores to the corporates. Corporate tax is at its lowest ever 26% from 35% under the UPA. It has dropped even below personal tax which is 28%.
Like most budgets the current one too has given a number of concessions to big business plus allocations to Andhra and Bihar merely to maintain the support of the TDP (AP given Rs.15,000 crores but this too as a loan raised from multilateral bodies and not allocated by the central budget) and Nitish Kumar (Bihar Rs 50,000 crores) for the BJP to sustain a majority at the Centre and stay in power. Four other state were also given compensation for natural calamities; all were BJP-ruled state. No concern for the country and its economy – only the politics of power and corruption. Such policies only perpetuate the ‘star’ position of the country, where India has the highest levels of inequality in the world; with no thought even of a wealth tax, reversing the rebates for corporates, nor any major tax on the super wealthy -Ambani, Adani types. Nowhere in the world is the rich-poor divide as sharp as it is in India; at least earlier they feared flaunting their wealth; now they do it with impunity.
In fact, as the budget was being presented,Ambani’s son’s wedding was taking place with massive pomp, the type of which has never been seen before in our country, with a stated expenditure of Rs.5,000 crores. Vulgarity in the extreme when an estimated 30% of our population live below the poverty line not able to afford two meals a day, let alone health care and housing. And ofcourse, it was attended by the whose who of Indian politics – most of whom claim to speak of working for the poor – including Modi. In fact, such events need to be boycotted, as those attending become complicit in the loot of our country and its people. The Adani/Ambai type ill-gotten wealth needs to be confiscated and redistributed amongst the over 40-crore people who cannot afford even two meals a day.
In fact, according to the PLFS (Periodic Labour Force Survey) real earnings of regular workers have been declining since 2011-12. LabourBureau data on wages shows a decline in real wages in non-farm occupations, with agricultural wages almost stagnant. Recent reports on the unorganized sector also suggest a decline in real earnings. Cultivation incomes have barely increased by 1% per annum in the last decade. Together these account for almost three-fourths of workers in the economy; all of whose standard of living has drastically dropped in these past 10 years. Even the MGNREGA scheme has seena decline compared to the actual spending in 2022-23, impacting not only those who live off it but also the entire wage structure in rural India. Only those at the top of the pyramid keep gaining, as also the blackmarketeers, corrupt politicians/bureaucrats and all their hangers on. The country and people suffer.
Let alone the working masses, this budget has, in fact, nothing even for the middle classes. It did not address the problem of jobless growth, rising prices of basic commodities, rural stagnation, the black economy, or any of the major issues affecting the people and economy of our country. To reduce the deficit, it reduced expenditure on all basic necessities and sought to promote the industrialists and rely on them for investment.
But it isnot that the government has not raised tax revenue, it has , but this will merely go in profligate spending on the govt and its institutions, further promoting cronyism. It has raise both capital gains tax and also income taxes as follows:
The budget increased tax on long-term capital gains on all financial and non-financial assets to 12.5% from 10%. Assets held for over a year are considered long term.Short-term capital gains will now be taxed at 20% instead of 15%. The budget has also increased the securities transaction tax on derivatives trading; restricting further the ability to save.
It was a beautiful trick – reduce cash in hand of the public, but draw out their savings to increase expenditure and thereby promote their economy.
Taxation Structure
Besides the Rs. 8.7 lakh crore largess given over the past 5 years, the FM claimed to give Rs.2 lakh crores for 5 packages for unemployment – but these were only to increase productivity of labour through skilling etc.
In the new tax regime, the tax rate structure will be revised as:
Income upto0-3Lakhs : Zero
Income 3-7Lakhs:; 5%
Income 7-10 lakhs; 10%
Income 10-12Lakhs 15%
Income 12-15Lakhs 20%
15 & above 30%
There is not much change over the previous year on income tax involving the middle classes; but corporate tax on foreign/Indian companies has been reduced from 40% to 35% – a boon to foreign investors and India’s big corporates.
In addition, the so-called angel tax levied on capital raised by new private companies is now abolished. Yet another boon to the business world.
It has also reduced customs duty on three pharma products; but all belonging to just one company.
Buying Political Support
The BJP needs the support of the TDP and Nitish Kumar to cobble up a majority and stay in power. That is why the only states that saw funds allocated were AP and Bihar where the local use the funds for themselves and also to win political support. In their states and stay in poor.
The finance minister announced financial support of a massive Rs.15,000 crore for the development of Andhra Pradesh’s capital, with a promise for more money in the coming years. After separating from Telangana it is yet to evolve its capital. For Bihar a slew of new airport, road and power projects were sanctioned.
Besides it granted funds to 4 states for natural calamities – all BJP ruled.
A significant dividend payout of more than Rs.2 lakh crores from the country’s central bank (RBI) has enabled the government to reduce its deficit without cutting expenditure significantly. Here again it is our funds (lying with the RBI) that are used to cover profligate spending of the central government.
The outlay on state-led capital expenditure on infrastructure creation has remained unchanged from the $134bn (roughly Rs. 11 lakh crores) announced in the interim budget. This appears to be the only rational expenditure, assuming the capital projects are well chosen. But, here too, as with most government projects, an estimated 40% is swallowed in bribes at varied levels. All such politicians wear their patriotism on their sleeves; it is not the country’s interests that is important but their own. This appears to be the same whichever political party is in power, with the top bureaucrats cornering a sizable part. Due to their continuity in office it is these bureaucrats who guide the political elements who keep changing.
Allocations in a Nutshell
The government hasnot even made a pretence of giving muchto the middle classes, though some sops are always there as we shall see later. The major gains are to business with the big capital gains tax cuts for the business community and a reduction in tax for the foreign investor and Indian corporates. According to Swaminathan Aiyar, who feels the business community could not have asked for a better budget,as these cuts are great news for the financial sector, for the stock markets and for the corporate sector. No wonder the money bags are all euphoric and keen on yet another term for the Modi government.
Budget 2024: Big Takeaways (all directly or indirectly helping the business community)
- In the name of a bid to boost consumption and provide more money in the hands of the salaried class, the government has tweaked tax slabs under the new income tax regime. The standard deduction has been hiked by 50 per cent to Rs 75,000 (from the earlier Rs.50,000). Salaried employees can now save up to Rs 17,500 in income tax annually.
- In a half-hearted move to boost jobs, one month’s salary will be provided to new workforce entrants across all sectors, expected to benefit 2.1 crore youths. It will be provided in three tranches and the eligibility limit is Rs 1 lakh salary. This is in essence a non-starter as jobs can only be created if demand increases; and all the policies are geared to restricting demand of the masses, except maybe for a small elite. There is no mention of the three qndhlf million children who drop out of school each year to boost the family income;
- Loans of up to Rs 10 lakh for higher education in domestic institutions and a scheme for providing internship opportunities in 500 top companies to 1 crore youth has been announced. It does not say what is the interest on the loan and the nature of the loan (collateral involved, the rate of repayment; etc). Besides it does not say whether internship will lead to permanent jobs – in fact internship is a means of companies to get cheap skilled labour. This will defacto subsidise the top 500 companies.
- In a bid to boost the start-up ecosystem, the government abolished angel tax for all classes of investors, which was introduced in the last budget. This comes as a boon to young startups which found it challenging to handle the tax burden on top of their operational expenses. Ofcourse, it did not say why it introduced this in the first place. Was it a mistake? This is not admitted, though the step on the face of it looks exceedingly foolish.
- Prices of gold and silver items are expected to come down with the government reducing customs duty to 6 per cent on imports. Prices of mobile phones are also expected to reduce, with the government announcing a cut in customs duty to 15%. All sops to the various industries and horders as it is not clear whether the reduced duties will be passed on to the customer.
Basic Issues Ignored
The reasons behind deficient demand are well known – the weak purchasing power of the people and the high levels of unemployment and underemployment. Most indicators of income and earnings in the last decade suggest either stagnation or worse decline. According to the PLFS Reports, real earnings of regular workers have been declining since 2011-12. Labour Bureau data on wages shows a decline in real wages in non-farm occupations, with agricultural wages almost stagnant. Recent reports on the unorganised sector also suggest a decline in real earnings. Cultivation incomes have barely increased by 1%per annum in the last decade (in other words a significant decline given the high levels of inflation). Together, these account for almost three-fourths of workers in the economy, all of whom have seen their real incomes reduced.
The primaryfocus for this budget should have been to find ways to raise the earnings of these workers through wage increases and employment. In reality, there is not even a recognition of the crisis of earnings in the economy. And without earnings rising, how can demand increase? The rural economy has been in distress for almost a decade. It has now spilled over to the urban areas. Depleting household savings and non-collateralised retail loans are fuelling whatever little consumption growth is visible. But this will sap the little savings of the middle classes if they are to use it for daily expenditure. And with the world economy in a tailspin, things can only go from bad to worse.
Its own economic survey the govt themselves argue for the necessity of agricultural growth for sustained economic revival. The budget has announced a wish list without allocating anything additional to agriculture. The idea of encouraging natural farming was announced first in the 2019-20 budget. The actual spending on the National Mission on Natural Farming last year was Rs.100 crores even though the allocation was Rs.459 crores. This year, even the allocation has been reduced to Rs. 366 crores. The total budget allocated for all agricultural research institutes, including ICAR and agricultural universities has declined compared to last year. In other words, India is doomed to remain a backward economy with no development of cutting-edge technology.
Of the eight schemes as part of itsso-called priority for ‘Productivity and Resilience in Agriculture’, none has seen an increase in budgetary allocation. The lifeline during the Covid pandemic and the slowdown, MNREGA, has seen a decline compared to the actual spending in 2022-23, and is the same as last years’ revised spending. Given the important role it plays in raising rural wages, it could have been the instrument to improve incomes in the rural areas.
On health care the govt has reduced the allocation from 2.6% in 1919 to 1.9% now; even though every year 55 million people are pushed into poverty because of expenses on health. It is one of the least in the world with most courtiers spending 14 times what India spent. On Education the situation is as pathetic dropping from 3.6% of total expenditure during UPA rule to 1.5% now. Besides, this limited amount will not be paid for from the main budget but through a cess introduced.
Over and above all this India faces he worst ever unemployment criris; the UPA had offered Rs.1 lakh to the unemployed the presnt govt has reduced it to Rs.5,000.
The flawed approach of a supply-side response with massive corporate tax cuts has not led to a private sector investment revival. The real elephant in the room is the lack of demand with no corporation willing to invest so long as demand remains subdued. The solution does not lie in incentives and subsidies but in creating a demand in the economy, which is only possible by raising the purchasing power of the masses. But this the rulers will not do, as the lower the wages the higher the profits; and the govt dare not reduce this. Maximisation of corporate profits entails low wages.
In addition, the private sector has also been asked to shoulder the burden of creating jobs in the economy. With the lack of decent employment becoming a political issue, this budget has proposed a plan of Rs. 2 lakh crores to be spent in six years to create 41 million jobs. However, the outgo in the current year is only Rs.28,000 crores for the employment incentive schemes and even this is unlikely to be spent given the onerous conditions set out for getting the benefit. All three incentive schemes require workers and enterprises, to be registered for EPFO. The total number of workers registered in EPFO was a mere13 million in 2023-24, one million less than in 2022-23, despite several schemes on similar lines already in place since the pandemic. The govt now intends to create 16-million EPFO-enrolled jobs this year with a govt cost of Rs.17.500 per employee. The rest of the employee cost is to be borne by the private sector. Even with an average salary of Rs. 25,000 per month (the schemes are for those earning less than 1 lakh per month), the private sector will bear 94% of the new employee cost. With such a burden no (or few) companies are likely to adopt it; so, yet another dead letter.
Irrelevance of Budgets
With actual spending in most departments being below budgeted expenditure every year, budget announcements look more like political manifestos than actual action plans. But any concrete action to revive demand and investment in the economy requires changing the political-economy paradigm, which still favours supply side incentives when the real problem is lack of demand due to stagnant or declining incomes and rising unemployment/underemployment; in other words, increased impoverisation of the masses. It is a corporate approach that prefers large subsidies to corporates even if it is at the cost of pruning investment in agriculture, rural development and human capital. The problem is not of fiscal prudence but of political priorities – of where to spend. In the end a budget is a political choice not just an accounting exercise.
To get the economy on track even in the light of a dangerous international situation, is to first create demand – through employment and development projects. This, in turn will create a market for goods. This growing market will then generate more jobs; which will further enhance the market for commodities. Thus the spiral of growth and development will set in, coming out of our continued stagnation. If at all the government is to intervene it should be to facilitate this process by putting money in the growth model. And as for the seed funds to fuel this process, there is an ample amount with the top 200 billionaires – confiscation of their ill-gotten wealth will give a bonanza, while they could continue to live as ordinary well off human beings. But no government is willing to take this obvious step towards developing our country. And with the world economyin crisis, it is an ideal opportunity to cut our dependence on them, as that only results in a drain of not only our finances abroad but also the brain drain.
The steps are simple, and if there is a will there is a way. But are we willing to step on a handful of influential toes, which the policies will entail? Besides with the crisis in the world economy likely to intensify, it does not auger well for the future.
July 26 2024
