A Decade Of Indian Budgets: The Hits And Misses
A copy of India’s budget is held up outside Parliament in New Delhi. (Photographer: T. Narayan/Bloomberg)

A Decade Of Indian Budgets: The Hits And Misses

BloombergQuintOpinion

Budgets come and budgets go. For a few weeks, schemes, proposals and announcements grab the headlines. Then the news cycle turns. Till the next set of budget announcements hit the press.

Yet, the true impact of any announcement or proposal may take years to play out. Ahead of Budget 2020, we look back at a decade of budget speeches to sort through big ideas that worked, the ones that flopped and those that created much controversy. The list is not exhaustive.

Budget 2010-11

The budget of 2010-11 was presented in the continuing shadow of the global financial crisis. India had managed to stablise its economy using heavy fiscal and monetary stimulus and finance minister Pranab Mukherjee set the stage for the budget by saying that India will look to quickly revert to 9 percent growth and then “cross the double-digit growth barrier.”

The financial crisis has exposed weakness across economies and, in India, the lack of an inter-regulatory forum was felt during that time. The budget announced the creation of the Financial Stability and Development Council, which was supposed to deal with issues and weakness that stretch across different parts of the financial sector.

A decade later, as we grapple with the fallout of the NBFC sector across banks, mutual funds and insurance companies, it would be tough to argue that the FSDC has been a success.

The same year the government set up a Financial Sector Legislative Reforms Commission. The commission’s report submitted in 2013 had a host of suggestions to make, including a unified financial sector regulator, besides the RBI. Many of the commission’s recommendations remain unaddressed.

The budget also saw Mukherjee propose new banking licences. The process stretched out for years and, in the end, only two new banks—Bandhan Bank and IDFC Bank—were granted licences.

The Food Security Bill was the other big idea that year. The Act was passed by Parliament in 2013 and continues to form the basis for food subsidies provided each year.

Budget 2011-12

The budget of the following year was modest in the new ideas it threw up.

The one big them it did focus on was an attempt to increase the share of manufacturing in GDP. “We expect to take the share of manufacturing in GDP from about 16 percent to 25 percent over a period of ten years,” said Mukherjee, adding that the government intends to come out with a manufacturing policy to achieve that goal.

The goal remains an oft-repeated but unattained goal.

In 2019-20, the share of manufacturing is estimated at 15.6 percent of nominal gross value added.

Budget 2012-13

After a relatively quiet budget came a controversial one.

Budget 2012-13 saw the government introduce the General Anti Avoidance Rules or GAAR. “I propose to introduce a General Anti Avoidance Rule (GAAR) in order to counter aggressive tax avoidance schemes, while ensuring that it is used only in appropriate cases, by enabling a review by a GAAR panel,” Mukherjee said in his budget speech.

Retrospective changes to the Income Tax Act that accompanied the budget created huge controversy in a move that allowed the government to pursue tax dues emerging out of the $11-billion Vodafone-Hutchison deal.

GAAR was finally implemented in 2017. Vodafone and the Government of India continue to be locked in international arbitration.

Expanding tax on services was another big move announced in that budget. The decision was expected to yield Rs 18,660 crore in additional revenue.

That was also a year in which the government decided to launch direct transfer of the fertiliser subsidy and also initiated pilot projects for direct transfers of LPG and kerosene subsidies.

This is one experiment which has seen success. In 2019-20, an estimated Rs 2.08 lakh crore has been transferred by DBT across 430 government schemes.

Budget 2013-14

The 2013-14 budget, presented by P Chidambaram, came against a backdrop not very different from the conditions the Indian economy is facing today. Growth for 2012-13 was estimated at 5 percent, there were concerns about slowing savings and investments, the fiscal deficit was running high.

Chidambaram appeared to approach the budget from the view of addressing these macroeconomic challenges.

First off, he reiterated his commitment to new fiscal targets laid down by a committee headed by Vijay Kelkar and said that the fiscal deficit would be brought down to 5.3 percent that year and 4.8 percent the next.

An investment allowance was introduced for new high-value investments. Under the scheme, a company investing Rs 100 crore or more in plant and machinery between 2013 and 2015 was entitled to deduct an investment allowance of 15 percent of the investment.

Measures were also announced to push savings. “In consultation with RBI, I propose to introduce instruments that will protect savings from inflation, especially the savings of the poor and middle classes. These could be Inflation Indexed Bonds or Inflation Indexed National Security Certificates,” Chidambaram said.

The product failed to take off and a second attempt was made in 2018 which also received a luke warm interest.

That year, the government also announced the setting up of the Bharatiya Mahila Bank and provided Rs 1,000 crore in capital. The bank after a short independent life was merged with State Bank of India in 2017.

Budget 2014-15

A change in government followed and Arun Jaitley took over as finance minister.

His first budget reiterated a focus on fiscal prudence. “Fiscal prudence to me is of paramount importance because of considerations of inter-generational equity. We cannot leave behind a legacy of debt for our future generations....” Jaitley said while setting a road map to bring down the deficit to 3 percent of GDP by 2016-17.

Jaitley also began a series of relaxations on FDI limits, which continued across the next few budgets. That year, Jaitley raised the composite cap on foreign investment in insurance and defence to 49 percent.

Jaitley also threw up the idea of greater public ownership in government-owned banks. While preserving public ownership, these banks should raise capital by share sales to common citizens, he said. The government will also give greater autonomy to banks to make them accountable.

In reality, government ownership in PSU banks has risen rather than fallen due to the large recapitalisation done since then.

Budget 2015-16

Jaitley’s second budget borrowed the Economic Survey’s pitch of the ‘JAM Trinity’, a term which captured the narrative for quite some time.

The Prime Minister had launched the Jan Dhan scheme, which aimed to bring bank accounts to all, in August 2014. That, together with Aadhaar-based verification and delivery on mobile, led the government to promise transfer benefits in a leakage-proof, well-targeted and cashless manner.

To build another layer of inclusion, the government announced the creation of the Micro Units Development Refinance Agency (MUDRA) Bank, with a corpus of Rs 20,000 crore.

Over the years, MUDRA’s success or lack of it has become a point of debate. Over a four year period, Rs 8.93 lakh crore in loans have been sanctioned. But bad loans have also been relatively high at about 6.8 percent, showed data accessed via an RTI query.

It was a busy budget that year.

The National Investment and Infrastructure Fund or NIIF was announced. After initial teething troubles, the fund has $3 billion in capital commitments.

Five new Ultra Mega Power Projects or UMPPs were planned which are yet to see the light of day.

The government also decided to merge the Forwards Market Commission with the Securities and Exchange Board of India. The merger was completely relatively painlessly.

Sovereign gold bonds were brought back in yet another attempt to wean Indians off their habit of investing in gold. As of September 2019, only Rs 11,168 crore in sovereign gold bonds were outstanding, according to the government’s debt management report.

Finally, this was the year, when the government made a promise to cut the corporate tax rate from 30 percent to 25 percent over the next four years.

After pushing back the decision by a few years, the government finally brought down the corporate tax rate in 2019 amid a weak economy.

Budget 2016-17

On the agenda in Budget 2016-17 was the formalisation of inflation targeting and the handing over of monetary policy to a six-member committee. Discussions had been underway and the budget stamped the changes.

Jaitley also expressed his intent to bring in a Comprehensive Code on Resolution of Financial Firms. “This Code, together with the Insolvency and Bankruptcy Code 2015, when enacted, will provide a comprehensive resolution mechanism for our economy,” he said.

The plan remained mired in debate, forcing the government to put in place an ad hoc window to deal with the insolvency of housing financier DHFL in 2019.

Like a number of budgets that came before it, an attempt was made to deepen the bond markets.

A idea of a credit enhancement fund—this time led by LIC—was floated. It was also said that the RBI would encourage large firms to raise a certain amount of their funding via the debt markets.

The RBI did put in place a large exposure framework, which nudged large borrowers to the debt markets and SEBI followed suit. While this may have deepened the issuer pool, the investor pool remains limited.

Budget 2017-18

This proved to be a quieter budget with two big ideas.

One was the unlocking of value from the railway subsidiaries like IRCTC, IRFC and IRCON. This remains work in progress. Of the three, IRCTC and IRCON are listed, while IRFC filed its IPO prospectus this January.

The next idea has created years of controversy. Electoral bonds.

“As an additional step, an amendment is being proposed to the Reserve Bank of India Act to enable the issuance of electoral bonds in accordance with a scheme that the Government of India would frame in this regard,” the budget said.

Opposition to electoral bonds has built up and the matter is now in front of the Supreme Court.

Budget 2018-19

The government launched its flagship National Health Protection Scheme or Ayushman Bharat in 2018-19, with a plan to cover over 10 crore families and providing coverage up to Rs 5 lakh per family per year for secondary and tertiary care hospitalisation.

According to the scheme’s website 21,259 hospitals have been empaneled and 78 lakh hospital admissions have been sanctioned. Yet, there are lingering concerns, particularly about the financial burden the scheme can entail.

The government has budgeted Rs 2,400 crore and Rs 6,400 crore in 2018-19 and 2019-20 respectively for the scheme.

In a recent study on state finances, the RBI noted “the true fiscal cost for states and the Centre could be higher if the insurance companies become insolvent and require bail-outs.” 

For stock markets, much of the attention that year fell on the government’s decision to introduce a long term capital gains tax at the rate of 10 percent. A tax of 10 percent was also introduced on distributed income by equity oriented mutual funds.

The debate over whether that tax should be removed continues as we head into Budget 2020.

Budget 2019-20

The financial year soon to close had two budgets. While the pre-election interim budget is usually bereft of big announcements, this government veered away from that path.

One big announcement in the interim budget was the direct cash transfers of Rs 2,000 to farmers under the Pradhan Mantri Kisan Samman Nidhi or PM-Kisan scheme. The scheme was expanded in the full budget that followed the election.

Out of a total estimated 2019-20 budget of Rs 87,000 crore for 14 crore farmer-families, PM-Kisan had delivered Rs 36,000 crore to 7 crore beneficiaries by last December.

The additional spend came with a tentative step toward a ‘rich tax’. The government decided to enhance surcharge on individuals having taxable income from 2 crore to 5 crore and 5 crore and above so that effective tax rates for these two categories will increase by around 3 percent and 7 percent respectively.

The government also for the first time proposed that the sovereign would borrow in foreign currency. India has stayed away from foreign currency sovereign borrowings for fear that government’s may be temped to use that route once-too-often, putting the economy in jeopardy. A debate between public intellectuals followed.

As the financial year comes to a close, there has been no word yet on a foreign currency sovereign bond.

It’s now over to #Budget2020

Ira Dugal is Editor - Banking, Finance & Economy at BloombergQuint.

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