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Pre-budget consultations make finance ministry officials no wiser

Nov 29, 2022

Every sector has suggested higher public expenditure to save the people and the country, which Finance Ministry may find difficult.

The conclusion of India’s pre-budget consultations on November 28, 2022 has left the Union Ministry of Finance in a worried state. So much so that it lost its temper on the joint forum of 10 Central Trade Unions that have presented their demands and are boycotting the centre's invite. A government official from the Ministry of Finance has even been quoted as saying that their demand was “mischievous, politically motivated, and a deliberate attempt to politicise the meeting."

This boycott has the Narendra Modi government in panic as the Union Budget of 2023-24 would be the last full budget before the general elections of 2024, and the state elections of 2023 are generally taken as semi-final contests. Needless to say, Finance Minister Nirmala Sitharaman needs to make this budget politically fruitful for the Modi government while trying to accommodate the suggestions made during the pre-budget consultations. However, this is no easy feat.

The pre-budget consultations were conducted in 8 days between November 21 and 28, but in virtual mode in spite of the COVID-19 restrictions having been eased. All together, 8 virtual meets were organised, in which 110 representatives of 7 stakeholder groups participated.

The stakeholder groups were pre-decided by the Ministry of Finance and the association and organisations were invited, but they were given a mere three minutes each to put forth their concerns, which the government thought appropriate. Keeping the meeting in virtual mode and giving only 3 minutes each to the workers’ representatives enraged the 10 Central Trade Unions and they ultimately boycotted the meet.

In response to the CTU's boycott and demands which included an open discussion rather than virtual meet giving insufficient time, the quoted official of the Ministry of Finance has even tried to shield the Modi government by saying, “Open consultations have been encouraged at the highest levels of the government.” His logic of “open consultation” was certainly ridiculous in the backdrop of “pre-budget virtual consultations with invited groups and people” especially organised by the Ministry of Finance. He even said that Prime Minister Narendra Modi had also shared the MyGov link through social media platforms, inviting all the citizens to participate in the budget-making process. Had it been enough, it is common sense, that government would not have organised the pre-budget consultations at all.

Let it be so. What the seven groups of stakeholders –representatives and experts from agriculture and agro-processing industry; industry, infrastructure and climate change; financial sector and capital markets; services and trade; social sector; trade unions and labour organisations; and economists – have narrated about the miseries of the people were chilling to the bone. Further, what they suggested as the ways and means to overcome could not be easily accommodated in the Budget 2023-23.

Nirmala Sitharaman also heard the Ministers of Finance of States. They asked for more funds, a greater say in centrally sponsored schemes and an increase in payments for royalty on minerals. All these demands are old and the opposition ruled states have been all along alleging that the Centre has been crippling their fiscal autonomy, by not giving their appropriate shares in taxes and royalty in minerals, and they are even ending up spending more than centre’s contribution in centrally sponsored schemes. The financial constraints of the Centre, and likely decline in GDP due to various domestic and international factors, may put the Centre in great difficulty while making plans for state finances.

Federation of Indian Export Organisations (FIEO) asserted that depreciation of the rupee against the US dollars is affecting exports’ competitiveness and therefore the sector requires more support. They wanted fiscal support to units providing additional employment, incentive to be linked to growth in exports and employment provided, 200 per cent tax reduction on the expenditure made by exporters for overseas marketing and freight. They said that Indian exporters remittance was $82.65 billion as transport service charge in 2021. They suggested GST refund to foreign tourists at airports.

Farmers’ organisations demanded lifting of ban on exports of foodgrains and restriction on imports that cost below the Minimum Support Price (MSP). It is worth mentioning here that earlier demand for legal guarantee for MSP is yet unmet and government is have not been willing to concede it is well known. They demanded that the government also focus on increasing domestic output of local oilseeds. At a time when India is undergoing shortfall of food production and rising food inflation these demands would be difficult to be met. India must reduce dependence on edible oil imports and impose higher taxes on processed food were other suggestions.

India Inc suggested an increased focus on creating jobs, boosting domestic growth and consumption, and further rationalization of taxes. They wanted India to stick to fiscal discipline. CII suggested keeping corporate tax at the present level. FICCI suggested continuance of the thrust laid on capex, especially in public sector, which they believed would increase private investment. It should be noted that Modi government has been focusing on private sector development and even a large number of public sector enterprises are being privatized, but private investment has remained insignificant compared to the requirement of enough job creation. FIMI, a miners’ organization, suggested withdrawal of export duty on certain minerals, such as bauxite.

CII batted for income tax cut to boost disposable income with people which seems very difficult for the Centre this juncture of multiple domestic and international crises including lower GDP growth rate of about only 6 per cent. Raising taxable income level or even reducing taxes seems to be complicated matter for fiscal math of the Centre.

Every sector has suggested higher public expenditure to save the people and the country, which Ministry of Finance may find difficult – fist because of the Modi government’s approach which tend to shed its own responsibility in favour of private sector, and secondly it would have scarcity of funds.

Central Trade Unions, except the RSS-BJP supported Bharatiya Mazdoor Sangh (BMS), who have boycotted the pre-budget consultation have demanded withdrawal of four controversial labour codes, stopping privatisation of public sector undertakings, restoration of old pension scheme, and job creation among others.

FM Nirmala Sitharaman have thus many suggestions that her government has not been willing to do in the past. However, she would have to do the difficult balancing act in this full pre-election budget between the populist one and the hard decisions. She has got a fair idea through seven groups of stakeholders as to what India wants, and we will known how many she accommodated and how many fell in deaf ears only when she would be presenting the Union Budget 2023-24 on February 1, 2023.

[National Herald]