Finance Minister Nirmala Sitharaman on Friday presented a stodgy Budget that fleshed out some details of the roadmap to achieving the Narendra Modi government’s preoccupation with taking the Indian economy to a $5-trillion orbit.

But, although it ticked off a few of the right boxes, Budget 2019-20 fell short of delivering the big-ticket reforms that had been expected of a government that had just returned to power with a resounding mandate.

Some of this is, of course, the consequence of the fiscal constraints the government faces, which left it with few reformist weapons in its armoury. But though the government appeared to have momentarily forsaken the populist urge, and even reined in the fiscal deficit for FY20 to 3.3 per cent, more fundamentally, its nativist impulse could be seen in the effort to raise import tariffs on a slew of goods.

Additionally, as the stock market’s adverse reaction to the speech indicated, there may be a couple of stings in store for India Inc. Individual taxpayers, too, were left with little to show for themselves.

Maiden Budget

Sitharaman’s maiden Budget – the first to be presented by a female full-time Finance Minister — focussed on driving what the Economic Survey has termed a “virtuous cycle of investment” with an emphasis on infrastructure development, raising the turnover threshold (to ₹400 crore, up from ₹250 crore) for companies to pay lower corporate taxes, freeing up liquidity to troubled NBFCs, generating jobs in the MSME sector, and generally enhancing the ease of doing business.

Sovereign debt

It also channelled the government’s intention to raise sovereign debt externally for the first time, and signalled a policy tweak to take the Centre’s shareholding in non-financial public sector undertakings below 51 per cent in order to grease the tracks for disinvestment.

Additionally, the Budget sought to calm the nerves of foreign portfolio investors by easing Know Your Customer norms for them. Sitharaman even signalled the government’s readiness to relax FDI norms in aviation, insurance and media.

Even if they did not go far enough, these reform-oriented measures had some analysts and business leaders gushing. “We believe the Budget ticks all the right boxes on improving the investment climate,” noted Nomura Securities economists Sonal Varma and Aurodeep Nandi.

Anil Agarwal, Executive Chairman, Vedanta Resources, said the mega-targets set in the Budget, including one for ₹100-lakh crore investment in infrastructure over the next five years, had the potential “to completely change the face of the nation and help the economy reach the $5-trillion mark.”

But not everyone was enthused by the proposals. Godrej Group Chairman Adi Godrej said he did not think the Budget was growth-oriented, and cited the stock market’s reaction as validation.

Although the speculation about an inheritance tax did not come true, the government increased the income-tax surcharge on high-income earners, which effectively raised the tax rates on those earning ₹2 crore and ₹5 crore by 3 pecentage points and 7 percentage points, respectively. Milan Shah, Partner at PwC, said the effective tax rate for those earning above ₹5 crore was about 42 per cent.

Fuel levies

The less well-endowed, too, found themselves burdened as the fiscally constrained government, eager to mop up revenues, raised two levies – the Special Additional Excise Duty and the Road and Infrastructure Cess – on petrol and diesel by ₹1 a litre each, effectively increasing the total taxes by ₹2 each. Taken with the value-added taxes imposed by the States, the price hikes on the fuels at the pump will exceed ₹2 a litre.

At a post-Budget press conference, Sitharaman denied the Opposition charge that the fuel levies would be “inflationary”, and cited the Modi government’s track record in inflation management in her defence.

She additionally claimed that the tax revenues and disinvestment targets set in the Budget were “realistic” and “achievable”, but analysts at rating agencies were less than convinced.

“There is a risk that India could miss its deficit target…if income from tax revenue underperforms projections, as it did last year,” noted Moody’s Investor Service Associated Managing Director (Sovereign Risk Group) Gene Fang. “We expect the economy to grow relatively slowly despite the government’s income support measures,” Fang added.

The scepticism over the government’s ability to abide by its fiscal commitments and, more generally, over its data is, of course, a legacy issue. Sitharaman’s ability to restore confidence on that front will be tested.

Opportunity lost

In the end, Budget 2019-20 will count as an opportunity lost. The government may have its eyes set on the $5-trillion target, but it isn’t clear that its roadmap to getting there is well-charted.