BUDGET 2019
THEsecondNarendraModi-led
BharatiyaJanataParty(BJP)gov-
ernment hasprovided,at best,an
inkling of its economic agenda
throughitsfirst Budget. ThatBudget
has beenmuchdiscussedsince July 5
whenit waspresented.However,an
aspectthathasnotreceived theat-
tentionit deserves is the underlying
perception of how development
shouldbefinanced.
UnionBudgetsare meantto lay
outhowthegovernmentplansto
mobiliseeveryrupeeof its resources
overthecoming yearandhowit
plansto spendthemoney.To that
end,taxandnon-taxrevenuesand
theproposedvolumeof borrowing,
togetherwiththeproposed alloca-
tionof thosereceipts,should be the
mainconcern.By listing those,the
governmentreveals itsfiscalstance,
with attendant implications for
growthandwelfare.
Budgetspeech 2019 was,how-
ever,different. Of the 105 para-
graphs that made up a rather
tiresome PartA of thespeech, 23
relatedtofinancialmarkets.Since
many paragraphs were add-ons
withoutsubstantialcontent,it wasa
large part of the Budget speech.
Flowsmediatedbyfinancial markets
ratherthanthegovernment’s own
resourcesareclearlybeingseenas
centralto the government’s strategy
offinancing development. Themes-
sageis thatprivatefinancialcapital,
domesticandforeign,normally look-
ing for quick returns, should be
tappedto meetdevelopmentobject-
ives.The“strategy”cannotstopwith
proposingthisroleforprivatefin-
ance.Developmentrequires invest-
mentin areasthatdo notpromise
quickreturns.A typicalexampleis
infrastructure, whichis crucialfor
developmentbut woefullyshortin
India.
The secondModi government
hasannouncedthat it willensurein-
vestments totalling Rs.100 lakh
crorein infrastructure overitsfive-
yearterm,or an averageof Rs.20
lakhcroreeveryyear.In comparison,
the total Central budgetary ex-
penditurein 2018-19wasRs.24.6
lakhcrore,of which justRs.3.2 lakh
crore was devotedto capital ex-
penditure.Muchof thatexpenditure
wasabsorbedby wages, salaries,de-
fenceandinterest payments. So, un-
less the government launches a
majorresourcemobilisationeffort,
themoneyfor theinfrastructural
pushmustcome fromelsewhere.
Thereare no signsof sucha pushin
thisBudget,noris thereanypromise
of onein the future.
Theconventional view is that
sinceinfrastructural projects require
large,lumpsuminvestmentsandarecharacterisedby longgestationlags,
theydo notattractprivateplayers,
andtax-or debt-financedpublicex-
penditure mustleadgrowthin the
sector.Butunwillingto tax andhav-
ing embracedfiscal conservatism
thatrequiresreining in thefiscal de-
ficit andpublicborrowing,thegov-
ernmentfinds thatinfrastructural
shortfalls havebecometoolargeto
be ignored. So alternativemeansof
financemust be found.
Until thefinancialliberalisation
of the 1990s, the government’s
budgetary effortwassupplemented
withresourcesfrom thepublicly
ownedandsupporteddevelopment
finance institutions.But withIn-
dian-style financial liberalisation
choosingto transformthosedevel-
opment finance institutions into
purecommercialbanks,eventhat
sourceof supporthadto be substi-
tuted.Thegovernment possiblyreal-
isesit madea mistakephasingout
the developmentfinancepipeline.
Budget speech 2019 claimsthat
thegovernmentproposes“to set up
an expertcommittee to studythe
currentsituationrelatingto long-
termfinanceandour pastexperience
withdevelopment financeinstitu-
tions,andrecommendthe structure
andrequiredflow of fundsthrough
developmentfinance institutions”.
Butthisis at besta feeblecry for aWooing speculative
fi nance
Budget 2019 sendstheclearmessagethatthesecond Modi-led
governmentplansto useeverytrickin thefinancialinnovation bookin
its desperatesearchfor privatefinancingof infrastructure.
BYC.P.CHANDRASEKHAR