On Friday, 23 August, Finance Minister Nirmala Sitharaman redacted, revised – and essentially, mauled – a Union Budget presented little over a month ago. As TV news anchors scrambled for soundbites, and news agencies released highlights, few paused to ask: how come?
Because, this humid August evening in New Delhi, Nirmala Sitharaman dismantled and rewrote her own July Budget.
To amend the incompetence of ‘July’ Sitharaman, ‘August’ Sitharaman has given us a box of ‘Band-Aids’.
This is a confession, that our finance minister and her ‘gnomes’ in North Block had made serious errors in writing policy, imposing tax rates, making sarkari spending plans, allocating money to states, and reckoning overseas and domestic deficits seven weeks ago. These mistakes had been exposed fast, forcing Sitharaman to eat crow and red-ink her July opus, wrapped at the time in red silk.
Of course, another explanation is possible — that a lot of folks in this government likely suffer from collective amnesia. So suddenly, today’s Union Budget becomes tomorrow’s ‘samosa-wrapper’.
‘August’ Sitharaman vs ‘July’ Sitharaman
Anyway, to amend the incompetence of ‘July’ Sitharaman, ‘August’ Sitharaman has given us a box of ‘Band-Aids’. Here is an example. Sales of passenger cars have slowed for 10 months, and in July, dropped 31 percent from the year-ago month. A little more than 200,000 vehicles rolled off dealerships, the fewest in 19 years.
Nobody would have cared, but for the fact that 350,000 people at different stages of car-making and selling have been laid off, and global giants Toyota and Hyundai shut down production, ‘temporarily,’ to adjust for unsold stocks.
Smart money is fleeing India for global bonds, equities are down 10 percent in two months.
Car-makers’ lobby Siam wanted a cut in the GST on vehicles from today’s 28 percent to 18 percent, compulsory scrapping of older vehicles, and implementation of tough emission norms to boost replacement sales. These were self-serving demands, which didn’t address underlying problems.
Sitharaman’s ‘Band-Aid’ is to postpone a hike in fees to register new cars for a year (who cares, if nobody’s buying?), allow government departments to buy new cars for old (a fraction of overall demand), keep conventional as well as electric vehicles on the road (no-brainer), relax emission norms – in a word, blah.
The vehicle slowdown is a symptom of a massive, economy-wide slowdown in demand.
Smart money is fleeing India for global bonds, equities are down 10 percent in two months. In July, blind to all reality, Sitharaman had stuck pins into effigies of investors: a tax on start-ups, another on foreign portfolio investments, yet another on certain returns earned by fatcats.
Some of these pins – which should never have been stuck, anyway – have been removed.
Undoing the Damage
Much of this, as you realise, is simply attempts to undo self-inflicted damage. Over the last five years, the government could have developed a wide and deep market for bonds. But well, Modi & Co would rather cavort with Article 370, tax raids and Hindutva than attempt meaningful reforms.
The vehicle slowdown is a symptom of a massive, economy-wide slowdown in demand. Data firm CMIE reckons consumer confidence now languishes at four-year-old levels: demand has contracted for banians, booze, and biscuit packets.
Without sweeping reforms in finance, the money will disappear fast, and as it goes, other sectors that could have used the cash better, will be left hanging.
Our economy huffs and puffs on a broken financial system. Most banks, state-owned and some private ones, are technically bust. Two shadow banks, IL&FS and DHFL, have collapsed. But have no fear, ‘August’ Sitharaman is here — with Rs 70,000 crore to oxygenate this wheezing system.
What About Accountability?
Without sweeping reforms in finance, the money will disappear fast, and as it goes, other sectors that could have used the cash better, will be left hanging. There are no ifs and buts: this is an absolute certainty.
Meanwhile, to keep the mythical ‘home-buyer’ happy and salvage a construction sector buried under the debris of decades of graft and greed, ‘August’ Sitharaman has sternly told banks to lower mortgage rates. Pray banks follow this advice, and home loan rates fall 0.5 percent. For a Rs 40 lakh loan, you may now expect to pay an EMI of Rs 33,200, instead of Rs 34,400-odd.
In a system with any accountability, ‘July’ Sitharaman should have resigned once her monumental failures had been exposed.
Anybody excited by this and rushing to book an apartment, do remember, most builders and developers are bust, and haven’t delivered apartments promised nearly 10 years ago.
It’s entirely possible that we should brace for yet another mauling sometime soon. Maybe a ‘December’ Sitharaman will throw away the samosa wrappers of ‘August’ Sitharaman, to scare an even sicker economy back to health.
In a system with any accountability, ‘July’ Sitharaman should have resigned once her monumental failures had been exposed. But hey, enough daydreaming. Get back to the job. If you still have one.
(The writer is a Delhi-based senior journalist. He tweets @AbheekBarman. This is an opinion piece and the views expressed are the author's own. The Quint neither endorses nor is responsible for them.)
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