The Union Budget 2018-19 in 5 charts

The Union Budget is a key document which informs the public about the Government’s socio-economic plans and priorities. It is important to critically evaluate this document because of our collective ‘failure to provide for full employment’ and the ‘arbitrary and inequitable distribution of wealth and incomes’; Keynes wrote this in 1936 and it continues to remain the same. Moreover, it is our collective right and responsibility to decide how the government should obtain its revenue and how it must be spent. No formula or algorithm exists for this. As Piketty wrote in his Capital in the Twenty-First Century, ‘Taxation is not a technical matter. It is preeminently a political and philosophical issue, perhaps the most important of all political issues. Without taxes, society has no common destiny, and collective action is impossible.

This blog post aims to outline the priorities of the current central government by examining the expenditure on physical and social infrastructure and the nature of taxes. This is done in 5 charts.

(1) Physical Infrastructure

Defence is significantly more important than roads, housing, food, and farmers’ welfare.


Capital Expenditure of Select Central Ministries (in Rs. Crore)
Source: Expenditure Budget Vol. 1, 2016-17, Statement 2, pp 4-9
All values are rounded off to the nearest crore.


(2) Social Infrastructure

Physical infrastructure creation is more important than social infrastructure creation.

Have the negative effects of physical infrastructure creation been accounted for?


 Total Allocations of Select Ministries (Rs. 112753 Crore)
Source: BS, p 36, Annex No. III-A to Part A
RE refers to revised estimates which include supplementary demands for funds made by the ministries during the financial year.
BE refers to budget estimates.


(3) Direct & Indirect Taxes

Our taxation policy is regressive due to the high proportion of indirect taxes.


Select Direct and Indirect Taxes (in Rs. Crore)
Source: Receipts Budget, 2018-2019, pp. 2-4


(4) Corporate Tax Concessions

Our tax concessions could approximately fund 75% of the social infrastructure spending estimate.



(5) Corporate Tax Structure

Our corporate taxes are regressive.


Effective tax rate paid by sample companies across range of PBT (FY 2016-17)
Source: Statement of Revenue Impact of Tax Incentives under the Central Tax System: Financial Years 2014-15 and 2015-16, p 30 of the Receipts Budget, 2016-2017, Annex-15.
1 Values rounded off to the nearest integer; hence the total adds up to 101 and not 100. Financial year 2012-13. The number of companies whose PBT is zero is 17,912 and their share in total income is around 9 per cent.


Concluding comments

Our government prioritises defence over agriculture. Our government prioritises physical infrastructure over social infrastructure and does not take into account ecological damage and the displacement caused due to physical infrastructure creation. And our taxation policy is regressive. We must use our collective rights and responsibilities to decide how the government should obtain its revenue and how it must be spent.

I thank Rahul Lahoti for inviting me to be a part of the panel which discussed the Union Budget at Azim Premji University-Undergraduate Campus on 14th February 2018, from which this post originated.

The Broken Headlights of the Union Budget 2017

The union budget is an annual planning document of the central government, which lays bare its economic priorities for the upcoming year. Since it outlines expenditure plans and revenue expectations (from tax proceeds), it has a significant impact on everyone, directly or indirectly, in the Indian economy. The consensus on the current union budget is largely that it is a ‘positive and progressive’ budget. Although seemingly it looks like a good budget, it suffers from a deeper malaise – of lacking a robust economic vision.

A government that is committed to economic development cannot not focus on employment generation and reduction of income and wealth inequalities. Further, employment generation has to happen in conjunction with decent wages. The former is an outcome of (both private and public) investment. It needs to be noted that the National Rural Employment Guarantee Scheme (NREGS) is only an employment safety net and not an engine of employment; one must be very careful not to conflate the two. Decent wages call for worker-friendly labour laws and adequate minimum wages. The inequalities of wealth (notably land and financial assets) keep rising unless structural reforms are undertaken, such as land reforms, wealth tax, and capital tax. (To formulate such reforms, information on the personal ownership of assets as well as their social distribution is required. Hence, the publishing of the caste census becomes a socio-economic necessity.)

With respect to wage policy, the variable of socio-economic significance is the real wage and not the market wage. The real wage tells us how much goods and services that a unit of the market wage buys. The real wage is therefore dependent on inflation and the capacity of the worker to access transportation, health services, and a clean environment. The class of economists who ignored real variables at the expense of the apparent ones were labelled as ‘vulgar’ by the economist–philosopher Karl Marx.

In addition, a piecemeal reading of the budget, while appropriate from the standpoint of individuals and firms, is inappropriate from a macroeconomic perspective. This is because the economy is an interconnected system, and one sector’s gain can lead to another’s loss, and multiple sectors can gain simultaneously. More generally, both private and public economic actions have unintended consequences; for instance, while the increased budgetary allocation for physical infrastructure is welcome, what are its effects on the natural environment?

The Indian economy is facing aggregate demand deficiency because of damp rural incomes, stagnant manufacturing, self-imposed fiscal austerity, and weak external demand. Tax cuts (for low-income individuals and MSMEs) and increase in public expenditure (on railways, roads, and the small increase in NREGS allocation) positively affect the aggregate demand, whereas demonetization-induced low activity levels, fiscal consolidation, volatile external conditions, agricultural distress, low real wages, and stagnant manufacturing sector all negatively affect aggregate demand.

On the aggregate supply front, the Indian economy is constrained by low agricultural productivity, poor working conditions for the majority of the population, inadequate physical infrastructure (access to drinking water, electricity, and roads), and environmental degradation. In short, India fares badly in terms of both physical and human capital. While the current budget gives some importance to physical capital, the allocations to human capital are deplorable. Moreover, the negative consequences of physical infrastructure creation on the natural environment and on the displacement of people must be accounted for in the balance sheet of economic development. Therefore, the paltry allocations to improve aggregate supply give us nothing to cheer. And on balance, the current budget significantly falls short of its intended goal of economic development.

Lastly, in his budget speech, the Finance Minister Arun Jaitley repeats the rationale for the demonetisation move of November 2016. He states that post-demonetisation, ‘GDP would be bigger and cleaner’. Moreover, he asserts (without any argumentation) that the demonetisation-induced fall in economic activity is a ‘transient effect’ and that this ‘is not expected to spill over into next year’ (contradicting the more cautious prognosis contained in the current Economic Survey). It seems that the FM is unaware of the concept of hysteresis: the short-term equilibrium can permanently affect the long-term equilibrium. This is part of the reason why mature democracies are extremely intolerant of labour unemployment. However, it is highly unlikely that official data will reflect the long-run adverse effects of demonetisation, because of its inability to adequately capture the economics of the informal sector.

In sum, there is no cause for any celebration but many reasons to be very worried for the economic present and future of India.