Arvind Mayaram, Former Finance Secretary, Ministry of Finance, Government of India To Kailashnath Adhikari, MD Governance Now
New Delhi: Calling the Union budget merely a vision document and not a financial statement presented to parliament, Arvind Mayaram, a former finance secretary in the Indian government’s finance ministry, said the budget left out many critical issues, leaving the country wondering what is going to happen on these issues.
“The economy is coming out of contraction. The union budget is just a vision document and not a financial statement presented to parliament. Many critical issues have not been addressed, leaving the country wondering what what is going to happen on these issues. The finance minister and her officers should have defined the fundamental questions that the budget should answer,” Mayaram said.
He was in conversation with Kailashnath Adhikari, MD, Governance Now on the webcast as part of the Visionary Talk series hosted by the Public Policy and Governance Analytics Platform.
He referred to a report titled State of Working India 2021: One Year of Covid-19 by Azim Premji University which says 230 million people have been pushed below the poverty line in an unprecedented pandemic. The report says that every year since 1995 has seen a reduction in the poverty line. For the first time, people fell back into poverty and the big no. Gains made over the years have been wiped out during pandemics.
Mayaram, who has been a senior economic adviser to the government of Rajasthan, said the budget does not mention or even acknowledge that many people have returned to poverty and how they will get out of poverty.
He said the FM does not recognize the growing inequality in India even though it has been noticed globally and the budget has no reflection on it. He added that the allowance for MGNREGA, the scheme which suffered a huge no. migrants has also been reduced.
“This year, it looks like the government has declared victory over unemployment and expects fewer non-migrants. There is no data to support this hypothesis,” he said.
He also referred to the World Inequality Report, 2022, by a team of leading economists led by Thomas Piketty and Lucas Chancel, which asserts that the income gap between the top 10% and the bottom 50% in India was 1:22 in 2021 and that India is one of the most unequal countries in the world and this trend is growing alarmingly.
“It is unprecedented that the annual income of the poorest 20% of Indian households, which has been rising steadily since 1995, plunged 53% in pandemic year 2021 from their 2015 levels. -2016. Over the same period, the top 20% saw their annual household income increase by 39%,” the book states.
“This is an alarming development. Who should worry more than the Minister of Finance about this happening in the economy? It is not recognized that this distressing phenomenon has been noticed globally, but it is not reflected in the budget,” Mayaram said, adding that when they can come up with a strategy for other activities for the next 25 years, they should also have recognized that they would be dealing with inequality in the next five years…” the former bureaucrat said.
He added that the budget failed to recognize the severe fall in household savings, with the savings rate at a 15-year low. To encourage borrowing, savings must be encouraged and the domestic savings rate must be high.
Speaking on the divestment, he said the divestments had been only 8% of the targeted amount and would be negative had Air India not been privatized. He said that the government is respecting its capital expenditure by reducing expenditure like in the social sector, by constantly reducing expenditure for agriculture, health, education, etc., not by increasing resources. He added that even according to last year’s CAG report, there was only around 50% spend in the first 8 months of last year. “We have no indication why the government thinks that what it couldn’t do last year it could accomplish this year,” he said, explaining how the government will raise funds for capital expenditure.
He further added that over the past eight years, private investment in the economy had stagnated for the first time since liberalisation. He said there are structural issues like manufacturing where 35% of installed capacity is unused.
“There is an intrinsic structural weakness in the economy that the government is unable to recognize and correct. The government’s track record does not evoke trust. For the private sector, it is more necessary to analyze why it does not invest.
Mayaram added that divestment processes are very difficult. The private sectors are very suspicious of court interventions, CBI, ED or income tax investigations, etc., etc., and it is not easy for the private sector to do business with the government.
Mayaram said that even when private consumption is low and in 2021-2022 formed about 55% of India’s economy, “However, the economic study notes that private consumption has improved significantly to recover 97% of the pre level. -corresponding pandemic, which is below the pre-pandemic level. Consumption in 2022-2023 is only expected to reach close to the level of 2019-2020. When there is no demand in the market and you cannot expect new investments,” he said.
When asked if the economy is now immune to further pandemic shocks, he said, we have a very fragile recovery based on several external factors and requiring careful management of the economy.
Speaking on the commonly used term “fastest growing economy” for India, Mayaram said the term fastest growing economy refers to an economy coming out of the worst. “If an economy was -7.5%, it is now growing at 8.5%. Political rhetoric but not as an economist…as a finance minister…because those listening to you are starting to believe you don’t really understand what’s going on.
Regarding structural reforms in the Indian banking sector, he said that the administrative supervisory structure of public sector banks should be dismantled as the RBI’s supervision over public sector banks is much lower than that of private sector banks. They must all be registered as banking companies under Indian banking law.
On the capitalization of public sector banks, he said once management improves, they could exit with IPOs.
DISCLAIMER: “This is a feature sponsored and provided by Governance Now.”