The union budget which was announced on February 1 has started off with “pessimistic assumptions” which would mean a continuation of the current economic slowdown, said former Finance minister P Chidambaram on Wednesday.
Speaking at Shri Ram Economic Summit organised by the economics department of Shri Ram College of Commerce (SRCC), the Rajya Sabha MP said that ordinarily, the explanation for the failing economy should come from the government
Chidambaram threw in some statistics showing the discrepancies in the government’s version of economic growth. Against a projected growth of nominal GDP of 12 percent, the GDP will grow by only 8.5 percent in 2019-20. The estimate for 2020-21 is 10 percent which he called a “pessimistic assumption” and indicated how even the government does not expect economic growth by next year. Against a Budget Estimate of 3.3 percent, the fiscal deficit will be 3.8 percent in 2019-20 and projected to be 3.5 percent in 2020-21.
Calling it a “demand constrained economy” Chidambaram said the country’s current financial state was created due to three major decisions taken by the BJP government. The first “monumental blunder” was announcing demonetisation in 2016 which left a “cash-starved society for a year and a half”. The second was “the hurried and flawed imposition of GST (Goods and Services Tax)”. Chidambaram said even though GST was something that he had introduced when UPA government was in the Centre, its impositions and tax structure which was imposed by the NDA government caused a lot of chaos for businessmen. He listed the squeeze in the banking sector as the third cause for the current state of the economy. The squeeze imposed was so much that the banks stopped lending money. “Business failure is different from business fraud,” said Chidambaram.
The senior Congress leader from Tamil Nadu blamed these three steps for leaving the economy into a tailspin and resulting in GDP decline for six consecutive quarters. “The growth rate has declined for the last six quarters. If the 7th quarter also shows decline then it means that the slide persists and we are yet to see light at the end of the tunnel, we are still in the tunnel,” he said.
Chidambaram also blamed the government for not able to attract investments despite huge Corporate tax cuts. Criticising the current union budget he said instead of giving Rs 1,45,000 crore to the corporate sector and getting nothing in return in terms of higher investment, the government should have boosted demand by putting more money in the hands of the poor.
He suggested more investments and broadening of central government schemes like Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), PM Kisan which would increase investments.
In contrast, the union budget announced last week reduced funds for flagship schemes under the Department of Rural Development to Rs 1.20 lakh crore for the year 2020-21 from Rs 1.22 lakh crore in 2019-20, while the funds allotted for employment guarantee scheme MGNREGA came down by Rs 9,500 crore during the same period.
Rs 61,500 crore were allocated for the MGNREGA for the year 2020-21, down by more than 13 percent from the total estimated expenditure for 2019-20 which was at Rs 71,001.81 crore.
Expressing his disappointment in the current budget Chidambaram said, “Investment follows demand, unfortunately, the government missed a huge opportunity to revive the economy.”
He said the coming six months will show no signs of revival in the economy, “I am afraid we are going into a year which will be another listless year, we’ll limp along barring any crisis in the international area, suppose there is a crisis in the Middle East or US-China trade war emerges there is no plan B… everything remains as it is today with no major crisis looming on the horizon we will still grow at only 5% or so but if there is a crisis, it will hit us very badly we will do worse than 5%.”
“So brace yourself, you didn’t ask for this but this is what you got, you didn’t deserve this but this is what you got so you’ll have to live with it I only hope that your parents do not reduce your pocket money.”