UNION BUDGET 2 : MSME, INFRA AND DEFENSE

In the first part of the budget analysis, I looked at Health, Education and the Rural Economy; in this, let me move onto the remaining aspects and points raised in the budget, leaving the Fiscal and Number aspects for the closing article to be taken up later. The first part dealt with the basics of a nation – these parameters are what establish Human Development, which is fundamental to any nation. Now, let me start the analysis with the MSME sector, which is, alongwith the unorganized sector, the largest contributor to employment as well as GDP.

MEDIUM, SMALL AND MICRO ENTERPRISES {MSME} AND EMPLOYMENT {Pt 71-82}

The budget, in points 71 & 72 on page 14, starts off with highlighting the credit aspects to MSMEs. This is where the disillusionment starts in my mind; having just perused the credit offtake scenario to the MSME segment {given in the Bibliography link nos 1 & 2}, which categorically makes a set of hard hitting points : a low proportion of manufacturing establishments get access to financial loans in India; and firms in the organized sector has higher access to loans as compared to the unorganized sector.  As per an article {Bilbiography link no 3} Banking Credit to MSMEs has actually shrunk in the past few years.

It is in light of the above facts relating to the Credit Scenario to MSMEs that I find it hard to justify euphoria towards the MSME in regard to this; and frankly, Credit is one of the biggest most pertinent issues facing this sector as of now. This budget, while making a few moves towards alleviating that, is short on any concrete solutions or suggestions. In fact, the point no 74 clearly mentions NBFCs as a possible solution post-demonetisation; this is hardly the best solution feasible. While TReDS {Pt 72} and Mudra {Pt 73} are welcome steps, they will require time to come to fruition, as link no 1 in the Bibliography again proves : which observes significant disparity in Women-owned or female dominated plants vs male dominated plants.

Interestingly, These points also note the formalization of MSMEs, and states it as a welcome move. This is undisputable; what is left out in this narrative is the pain being caused by this process, for which a defined process is needed for alleviation. But more of this in  a dedicated article on this point; let us move on. A welcome statement is contained in this segment, however : the focus on TReDS {Trade Receivables electronic Discounting System : see Bibliography link no 4}  is welcome – as it has been identified that the biggest need for credit is in working capital.

The next few points pertain to job opportunities; I reserve judgement – accept to state that I am highly skeptical. These are small measures, and are not mission critical in a hiring decision. The Job scenario is dependent more on the overall macro-economic scenario is general, and capital expenditure in specific. Further, Bank NPAs are also a critical factor. In the light of this, cosmetic measures are likely to fail. And for MSMEs to become the solution requires dealing with their issues on a much bigger footing than we have seen so far. Thus, on this, I am not so sanguine.

INFRASTRUCTURE {Pt 83-114}

This is a mix-n-match, a potpourri, and it is difficult to make much of this; I can only state that the proof of the pudding is in its eating. That said, one thing does stand out – nowhere in the entire infrastructure segment does the problem of rural infrastructure come up, which has been mentioned only in the Agriculture segment of the budget. This segment, by contrast, specifically mentions National Highways, Toll  Fastags etc, all important, but misses out on Rural Connectivity. This may be significant, or not  as it does find a mention in the Rural segment: time will tell. But to my eyes, the intense focus on this segment in terms of space devoted to it is noteworthy.

The budget specifically mentions Urbanisation is our priority – what about solving rural problems before that? Why should there be a Smart City Budget support, when we all can see the results so far? Ditto for the support to Digital India, and many other small aspects. We are a resource scarce nation; we need to make our choices properly! The saving grace is in point 110, the plan to connect 1 Lakh Gram Panchayats to the Digital Net through High Speed Fiber Optic Network, and wifi hotspots to provide broadband access in rural areas.

BUILDING INSTITUTIONS {Pt 115 – 137}

This starts with defense; I am frankly not impressed. For my analysis, I will focus only on Defense in this segment. Not because this Government hasn’t done much; it has done a lot, fair is fair. But a lot more can be done, and a lot more space can be found in the budget for the defense of India. The budgetary Allocation towards defense is 282733, which is roughly around 2.1% of GDP; taking a GDP in the range of 2100 Billion Dollars and a conversion rate of 64 for the Dollar. Neither is the admittedly welcome emphasis on internal production an immediate solution. The graph of Defense Expenditure to GDP, taken from World Bank data,  given below is self explanatory, and reveals where we are going wrong.

SPEND MORE ON HEALTH AND DEFENSE – HOW?

The question we all need to ask ourselves is : are we doing enough for the nation? This is a question I am asking the people, not the Government; which is having to play a hard decision making game, trying to balance the various demands being placed on it as adtroitly as it can do. If we have to spend more money where it is required – where do we find the resources? We spend between 2 to 2.5% of GDP on Defense, and far lesser on health and education, among the lowest in the world in health at least. {The disparity in my calculation and the World Bank is due to the fact of my using an approximate number for GDP, use my calculation as a rough guide only please}. We, as a people, need to enable the Government to allocate more resources to these vital segments, which is essential if we are to escape the Low Middle income trap, and become a Middle income country! This is what I look at – the numbers and the fiscal situation in the concluding part of this mini-series…


BIBLIOGRAPHY
1) India's Twin Balance Sheet Problem ; 
2) Credit Crunch Continues to Haunt MSME ; 
3) Need for Innovation in MSME Sector ; 
4) For Suppliers It Pays To Get On TReDs ; 
5) Mudra Offerings ; 
6) TReDS platform pulls in many private companies, PSUs and PSBs ; 
7) RBI May Take ReLook At TReDS