Budget 2019: Sanjeev Sanyal Says Budget Is A Payback For Farmers And ‘Good Troopers’ 

I think the two segments that you just mentioned, there was a focus on them and let me explain why those two segments as opposed to any other. First of all, let’s take farmers into account. There is a lot of talk about farmer distress but let’s look at what exactly is going on. What has actually happened is that farmers have actually done a very good job of doing what they always have been asked to do, which is to increase output and for the last couple of years, they have actually dramatically increased farm output. The problem is that this has caused downward pressure on their prices. And so, as a result of that, that has been good for the economy at one level because the rest of us have benefitted from the fact that we now have food prices at record-low inflation, now in many cases facing deflation. We go back a few years ago, onion prices or pulse prices would spike up and down, whereas we have had very stable food prices, in fact if anything, coming off.

The rest of us have benefitted from this and what this is, is an attempt to transfer back some of that, pay back some of that back as a top-up to farmers to help them with the fact that price deflation has happened. So that is why this specific segment has been targetted. It’s a payback for effectively subsidising the rest of us by increasing production so much. So that is the first segment that we wanted to talk about. The second segment is of course the middle class and the lower middle class and as the finance minister just pointed out, the idea here was this. This is the class that has been really good troopers in the last couple of years. They took in their stride several important disruptions like Goods and Service Tax, great in the long run, important reform but yes it did cause disruptions and again this is the class which was impacted. Demonetisation. Again, there may be long-term benefits but it was disruptive. So the middle class and the lower middle class have been great troopers and so if you listen to finance minister Goyal’s speech, he first of all, before giving them any, never mind the fiscal benefits, the first thing he said, he was thanking them for being supportive in these major reforms and then in addition to that, I think there was a feeling that something had to be given back and so hence, as you saw, the limit being increased from Rs 2.5 lakh to Rs 5 lakh, and so on. So, I think that was basically the thrust of the matter and yes, some part of this will go through to consumption, which is fair because, as I said, there is no inflation in the economy as far as we can tell. If ever there was a case for allowing a little bit of consumption to grow, this has got to be the moment.

That is for the future governments to look at but for the time being what is being done is a top-up. We are explicitly making the point this is not what is the full-fledged universal basic income which was a rollback of subsidies and replacement with this. This is a top-up, we are being explicitly saying so and it is in compensation, as I said, for essentially deflating food prices of which, incidentally, the rest of us are beneficiaries. So this is sort of a transfer of resources to those who have made this happen.

As things stand, yes. But the point of the matter is obviously, circumstances will change. There may be another point in time where we have resolved this price deflation problem and this is not considered the optimal way to support the farmers. There may be other things that may happen but as things stand, given the current situation, should that persist, this toll will persist.

This government has more than shown its commitment to infrastructure in the last five years. I don’t think there has been any let up whether in terms of building metros and cities, or highway building or dramatic expansion through the UDAN scheme in civil aviation, you will hardly be able to make the case that this government doesn’t take the infrastructure seriously. This is an interim budget. It targetted two segments, that was the focus of it. When a new budget will be presented in July, and the new government will have priorities, and it may have different priorities on capital expenditure from the current one. We will see the focus of this one as an interim budget was mostly on these two segments and hence, they were targeted.

GST systems worldwide have taken several years to stabilise, so it is not unfair that we should expect that next year we will begin to see it kicking off, that would be in line with what we have seen in other parts of the world as well. Expecting GST to settle and then finally begin to really pay off, it is not an unreasonable expectation. As for the RBI’s payment, a committee has been formed to come up with a rule-based system of how RBI dividend will be transferred to the government. I like to make this point clear that there is, in the media, some sort of a view that RBI dividends to govt are somehow not Kosher. That is not the case. Everywhere in the world, the seigniorage is transferred from the central bank to the government. It happens in the U.S., China and Japan. Seigniorage is an entirely legitimate source of income for governments and every central bank in the world transfers funds to the government. There is nothing particularly suspicious about it. The question is whether this is done using a sensible rule-based system, and if this system will be put in place shortly when the committee comes up with its report.

Not so long ago, we used to debate whether it was 5 or 6 percent of the GDP. The fact that we are debating 3.3 and 3.4 percent, that itself is a massive shift in how we think about all of this. Please look at the primary deficit number. It is 0.2 percent of the GDP and is a slight improvement on what had been expected. The deficit, as it stands now, is effectively being driven by interest payments on existing debt. Structural decline in interest rates is something that we need to think about quite seriously, given that we have managed to structurally lower inflation. So, this, in the longer run, a more dynamic between inflation and interest rates than it is about fiscal consolidation because on an ongoing basis, the primary deficit which the finance minister controls, it is well within control.

These things will be adjusted along the way when a full budget is presented. We are fully aware that excessive borrowings through a high interest rate sources is not tenable but this is an interim budget and adjustments are made along the way as and when required.

What is it that PM Modi was trying to achieve when he said we are going to create a New India? Essentially what he was doing was to create a rule-based economic system and replace the old patronage-based rent seeking kind of economy. So, if you see, everything that is being done is being done with this kind of focus. One is of course, breaking down the old patronage system by cracking down on black money, real estate misuse, the banking sector and all the evergreening that used to happen. So, breaking that down is one part of what he is doing but then replacing it with a framework of rules. That has been done systematically for everything. Let me give you some examples.

Monetary policy is now an institutionalised system with the monetary policy committee, so that’s a rule based system. Another was, how do you have exit. So another rule-based system, Insolvency and Bankruptcy Code. We had an extremely complicated tax system, different states doing their own thing, nobody knew what was going on, you now have a GST Council. We now have shifted on to a new regime under the GST. Maybe it’s not the world’s best system but its pretty good, it works and we can keep improving it. Even 50 years from now, what you will be doing is improving essentially the framework. So, the point is that a framework of rule-based governance has been put in place, more can be done I am sure but I think this is the broad agenda and I think you will see more being done in this line. It’s not finished business but of course if you are taking a longer term perspective, we will now have to begin to think about many other things to take this particular approach forward.

I dispute the fact that growth has not happened. India remains the fastest growing economy in the world. As far as the jobs issue is concerned, that is a matter of debate which is marginally being done on the basis of a report that has not been made public. Manufacturing could have grown faster, but the services sector has grown very fast. They are large sectors that did not exist that came about. Even in manufacturing, there have been problems in certain areas like small-scale textile manufacturing, but other sectors have dramatically grown. Five years ago, we barely had a mobile phone manufacturing, but today we can claim to be the second largest industry. LED, lighting and all kinds of new sectors where we have created completely brand new manufacturing spaces. We could do better, but to say that nothing is going on and have a general smug idea that growth has been disappointing is not really the case.