‘Stimulus’, ‘Structural Reform’ and ‘Austerity’? What Awaits India after the Elections?

Surajit Mazumdar
After the declaration of the 2018-19 third quarter GDP figures by the Central Statistical Organization (CSO) at the end of February, some talk began in the media about the Indian economy heading towards a slowdown. As the country headed into the general elections thereafter, this matter got pushed into the background and never really became a central issue in the election related debate on news channels and newspapers. However, slowly, more and more stories and reports ringing alarm bells about the economy have started appearing, particularly in the business news, and a consensus is taking shape that India is heading into a major economic slowdown that reflects the operation of demand constraints. Even the word recession has been used by corporate bigwigs while serving government officials have used the term crisis to describe some dimensions of the current situation. Entering the discourse has also been the view that this is not simply a cyclical downturn – a fair amount of publicity being given to the opinion of a member of the PM’s Economic Advisory Council that India is in danger of slipping into what is called a “middle-income trap”. 



Whose Crisis?
There are of course several people – traditional critics of pro-business and market-friendly economic policies who are usually ignored or dismissed by the business press – who have cried themselves hoarse for some time about the mounting agrarian distress, the huge employment crisis and other such indicators of an unhealthy economy. These issues which are important to the millions of Indian working people, however, are not the immediate or chief preoccupation of the recently articulated concern with the Indian economy’s difficulties. They may get referred to incidentally as some of the reasons why several sectors of the economy are facing a problem of sagging demand – why sales of cars, motorcycles, tractors, consumer durables or FMCG products are appearing to be hit. The chief concern, however, in this current discourse on the economy is the implications this has for the future of corporate top lines and bottom lines, and generally for those on the other side of the economic divide who have gained and profited most from the highly iniquitous growth process of Indian capitalism over the last few decades. Indeed, it is the mounting threat to the continuation of that growth and accumulation process that is being expressed, and it reflects no fundamental change of heart. 
Who is shaping this discourse about the difficulties confronting the Indian economy is relevant because it is also setting the terms of the debate on the ‘stimulus’ package or ‘structural solution’ to be adopted by the Government that will assume office after the election process is completed.  Curiously, or perhaps not so curiously, one can hardly find any evidence of a growing crescendo in favour of a major stepping up of public expenditure, or for using fiscal policy’s potential to reduce inequalities to address structural constraints. Instead, there are clear opinions being articulated that that is not the direction to go in – which is also a signal to the incoming government to rein in the implications of the promises that all the contenders have been forced to make in their their quest for garnering electoral support from a populace reeling under a jobs and incomes crisis. The 2019 elections have seen political parties making concrete promises about giving some kind of income support and other benefits, which on the face of it would involve stepping up public spending. However, none have promised to abandon the FRBM Act or its underlying philosophy of ‘sound finance’. So where is the new Government going to find the resources to spend and yet adhere to fiscal deficit targets? This assumes significance because not excessive spending, but huge revenue shortfalls have in fact guaranteed that the term of the first Modi government is leaving behind for the next government a deepening fiscal crisis too.    
The Crisis of Revenues   
When presenting the final budget before the 16th Lok Sabha on 1 February 2018, Finance Minister Arun Jaitley was forced to bring down, in the Revised Estimates (RE) for 2018-19, the gross tax revenue projections that he had made a year previously (Budget Estimates or BE), by Rs. 23,000 crores.  The solitary source of difficulty acknowledged then were the revenues from the newly introduced GST- the RE target for which was pegged at Rs. 6,43,900 crores or 1,00, 000 (1 lakh) crores less than the BE figure. 
The Union Government Accounts up till February 2019, put out by the Controller General of Accounts (CGA) at the end of the month of March 2019, showed the 11-month level of Central Government’s GST revenues (including CGST and UTGST, IGST and GST Compensation Cess) was Rs. 5,26,680 crores, still Rs. 1,17,220 crores short of the RE figure. A day later, the GST collections for March 2019 were announced through a statement of the Ministry of Finance. What was celebrated as the highest monthly collection since the introduction of GST – Rs. 1,06,577 crores – made it also crystal clear that the revenue shortfall under the GST head was more than 60% greater than what the RE had estimated. Deducting the Rs. 51, 209 crores of the March collection earmarked for State Governments and adding the remaining Rs. 55,368 cores (including Rs. 8,000 crores Compensation Cess) to the Centre’s kitty makes the total revenues of the Centre from GST in 2018-19 Rs. 5,82,048 crores – Rs. 61,852 crores less than the RE.  
What was not acknowledged at the time of the presentation of the Union Budget was that difficulties were also being faced in attaining the BE levels of other indirect taxes (excise and customs) as well as income taxes. The provisional full year figures for these have not this time been released by the Finance Ministry despite almost two months having passed since the end of the financial year – a break from the usual pattern that itself perhaps says something. The CGA release for March 2019 will also not be available till the end of May. However, the accounts till February end indicate that revenues from other indirect taxes would have also fallen some Rs. 37,000 crores or so short of the RE. Media reports have also indicated, citing Central Board of Direct Taxes (CBDT) sources, that revenues from direct taxes have been some Rs. 83,000 crores less than the RE. Most of this, barring Rs. 8252 crores attributed to corporate taxes, is on account of a shortfall in income tax revenues. These are also consistent with the reasonable projections that one can make based on past trends and the know revenue collections for the April-February 2019 period. Indeed, the story in the case of personal income taxes, of the Finance Minister turning a blind eye to actual revenue trends and retaining the BE figure in the RE and the actual finally being much lower, has been repeated for the second successive year.
Thus, notwithstanding the tall claims about GST and the effects of Demonetization on unearthing the hidden incomes of tax evaders – the taxes that were directly affected have been responsible in 2018-19 for a total Central gross tax revenue shortfall compared to the RE that would be in excess of Rs. 1.8 lakh crores.  Over 1.1 lakh crores of this hit would have fallen on the Centre’s net revenues and the balance would be the effect on the share of States’ in Central taxes. The Central fiscal deficit by February end was already Rs. 217, 101 crores (2.17 lakh crores), or 34 per cent, in excess of the full year RE figure. A shortfall in tax revenues of Rs. 1.1 lakh crores would require an equivalent cut in expenditure for achieving the full year fiscal deficit target. The difference between the full year RE expenditure figure and the amount already spent by February end being just Rs. 268,396 cores (2.68 lakh crores), achieving the fiscal deficit target would have needed the Government to have spent in March 2019 41 per cent less than it would have been able to spend if there was no revenue shortfall. If it didn’t manage that, one can be certain that once the final figures come out, this will result in a clamour for restoring fiscal ‘discipline’ by reining in expenditures.  
Stimulus versus Austerity: Contradiction or Consistent?
What the 2018-19 fiscal situation of the Central Government reveals is that once the scope for windfall revenue gains from POL (Petroleum, Oil and Lubricants) taxes, enabled by the fall in international oil prices from 2014, has exhausted itself, generating revenue expansion without significant changes in rates and enforcement has become difficult. A continued commitment to fiscal conservatism will have to therefore mean persistence with, or even reinforcement of, the expenditure compression that has marked the retreat from the post-Global Crisis stimulus. Expenditure compression to reduce the fiscal deficit has been practiced throughout the current decade, under both UPA-2 and the Modi government. Thus, the sum of the Central Government expenditure and the States’ share in Central Taxes, as a percentage of GDP, which was 17.66 per cent in 2011-12, has never reached anywhere near that level thereafter. It stayed below 17 per cent in all the five years of the Modi Government. Had such a fiscal stance been consistent with keeping the engine of economic expansion going, there shouldn’t have been any slowdown. However, the ‘signs’ so to speak of Indian growth being demand constrained have been visible for a as long a time  – in the form of stagnation of investment and construction activity, agrarian distress and extremely poor industrial growth levels, and virtually no growth in exports and foreign trade – through the decade that will soon be ending. A deepening employment crisis is the form in which most Indians have suffered its consequences and their own inability to find adequate work and decent incomes have also underlain the inadequacy of demand. Cheap labour still ensured reasonably high profits for the corporate sector, but it could not generate the conditions for sustaining the rapid growth of profitable private capital accumulation witnessed in the first decade of the twentieth century. An intensification of that problem, not the emergence of some fundamentally new situation, is what all the current talk of an impending economic crisis is all about.  
Almost a decade of the visible operation of a demand constraint on Indian growth did not induce a rethink on fiscal conservatism either among India’s capitalists or those adhering to their class outlook. There is no evidence of any rethink even now – the ‘stimulus’ and ‘structural reforms’ they want to address the current slowdown certainly doesn’t involve encouraging the state in the direction of greater mobilization of taxes from the rich, the wealthy and big business and a big stepping up of public expenditure. Instead they want the State to ‘encourage’ private investment by creating even more inducements and a more ‘favourable’ business environment. Indeed, they would be all for the new government initiating a drastic austerity programme to contain the slippage that has already happened on the fiscal deficit front. The ‘reform’ they wish for therefore is very different, one that would hit at the interests of working people even more by asking them to bear the burden of ‘reform’. It was an expectation that a Modi-led BJP government would be most likely to deliver such a reform that had made corporate India gravitate towards backing it in 2014. It is indeed ironical that the end of the term of that Government, Indian capitalists are back to square one – still waiting for the miracle which will stave off a worsening economic crisis that is now increasingly threatening them.   
The author is Professor at CESP, JNU, New Delhi.