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Why we all need to be scared about the Indian economy?

Kamal Mitra Chenoy Articles

Now that finance minister Arun Jaitley has presented his government's last full Budget, it is imperative to examine the prominent trends of the Indian economy.

Many of those in rural India who worked under the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) are not being paid in time. At times payment has been delayed for months.

The delay in paying rural workers, who are entitled to be paid official minimum wages under MGNREGA, shows Narendra Modi government's lack of emphasis in dealing with rural employment. The issue did not draw any substantial analysis in the Budget.

Nothing was stated about the Financial Resolution and Deposit Insurance (FRDI) Bill that the government wanted to pass, which allows the use of private depositors' money to bailout banks with large deficits.

Does the silence on this controversial issue mean that the bill has been shelved or is the Modi government biding its time to make it a law? The most intriguing issue is why these Budget items among others were not even mentioned by the finance minister.

Despite this strategic silence, the Sensex dropped by 840 points after the Budget. Not a good sign for the NDA's last Budget. A large part of the shock wave caused by the FM's Budget was self-inflicted. The fiscal deficit, earlier predicted to be 3.2 per cent, has been recalibrated to 3.5 per cent. The 10 per cent capital gains tax turned out to be the most destructive for the Budget. Following the sharp decline in stocks, the market capitalisation of BSE-listed companies tumbled Rs 4.58 trillion to Rs 148.54 trillion.

Both Modi and Jaitley have remained tight-lipped about it. Though Prime Minister Modi had waxed eloquent at Davos on the supreme importance of data, data was missing from his government's last Budget. To put it mildly, the forecast for the months to come does not appear rosy.

The merchandise trade deficit in December 2017 rose to $14.9 billion compared to $10.5 billion a year ago. The oil imports went up by 34.9 per cent to $10.3 billion in December 2017 from $7.7 billion in December 2016.

Exports (April-December 2017-18) increased by 12.1 per cent to $223.5 billion from $199.5 billion in the same period last year, and that of imports by 21.8 per cent to $338.4 billion from $277.9 billion. So, exports continued to be considerably lower than imports. Oil imports went up considerably by 34.9 per cent to $10.3 billion. This is not good news for the Indian economy and its Make in India policy.

The Consumer Price Index (CPI) inflation rate rose to 5.2 per cent, a 17-month-high from 3.4 per cent a year ago. The Labour Bureau data showed that the CPI inflation rate of agricultural labourers was 2.7 per cent in December 2017 and that of industrial workers increased to 4 per cent in November 2017 from 2.6 per cent a year ago. These consumer price indices hit the poor and lower middle classes directly. A clear indication that inflationary tendencies could not be controlled by budgetary intervention.

All in all, Jaitley's Budget was a rather facile one on all accounts and disappointed the markets. It is difficult to see why the finance minister did not foresee the crash caused by his 10 per cent capital gains tax, and clear measures to control oil imports.

Taxing fuel is not a good idea if oil imports keep rising. The central government could have reduced the tax on fuel to help the public. To put it succinctly, the Budget was an opportunity lost.


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