By Karan Thapar

Tomorrow the Finance Minister will rise to present the budget. By the time she sits down we should have a clear idea of what she proposes to tackle the problems the economy faces. The only thing is many of us don’t have a clear idea of what those problems are. A lot has been written by learned authorities but not being economists it isn’t easy to follow. So let me attempt a simple account of the state of the economy.

Nilesh Shah, a member of the Prime Minister’s Economic Advisory Council, says “the worst is firmly behind us”. This is because GST collections, foreign exchange reserves and power consumption are at an all-time high whilst passenger vehicle sales, railway freight and the PMI index indicate strong recovery. This also explains why the Finance Minister believes the economy is experiencing a V-shaped recovery.

Montek Singh Ahluwalia, the former Deputy Chairman of the Planning Commission, disagrees. He says the formal sector could be recovering in a V-shape but not the whole economy. The letter K is a better symbol – some sectors are reviving rapidly, others are in dire straits.

However, both agree on the areas of concern. The first is employment. The Centre for Monitoring the Indian Economy says in December employment was down by 14.7 million and the unemployment rate was 9.1%. Meanwhile NREGA data shows 10 crore availed of this scheme upto 10th January, an increase of 21% over last year. So, both in urban and rural India the employment situation, which improved over the summer months, has deteriorated.

A second concern is the financial sector. The Reserve Bank’s latest Financial Stability Report says non-performing assets could shoot up to 13.5% by September 2021 compared to 7.5% a year earlier. More worryingly, NPAs of public sector banks could increase to 16.2% from 9.7%. Ahluwalia has congratulated the RBI for its honesty. Shah says NPA resolution won’t be easy.

Let’s now come to sectors which bore the brunt of the lockdown and need special attention: MSMEs, which constitute 30% of GDP and 45% of manufacturing, construction, which is the second biggest employer, and practically everything to do with tourism and hospitality. Together, this is a substantial section of the economy. However, because we have little to do with MSMEs and have stopped visiting hotels and restaurants, we don’t appreciate their suffering. But, say both Ahluwalia and Shah, some MSMEs may not be revivable. Any attempt to do so would amount to throwing good money after bad.

So, not surprisingly, consumption and investment are well below pre-Covid levels. The former was the cause of a demand-led crisis this year. Now Pronab Sen, the former Chief Statistician, fears the latter could create an investment-led crisis next financial year.

One other issue as we await tomorrow’s budget. Whilst deliberately avoiding what the Finance Minister should do, how should she raise the money for the measures she announces? Some fear the return of wealth tax.  The super-rich are apprehensive of income tax increases. However, Nilesh Shah has suggested innovative ways of avoiding both that could still raise substantial sums. He’s proposed a gold amnesty scheme, monetisation of government-controlled assets like enemy property and surplus land, strategic disinvestment of public sector units and legalizing betting and gambling. Two of these deserve special attention.

Shah says $373 billion of gold has been imported in the last 20 years. If you add what’s come illegally the total is, perhaps, half a trillion. The World Gold Council estimates household gold could be 25,000 tonnes worth $2 trillion. Much of this is undeclared. So if the government announces a gold amnesty it could tap hundreds of billions of dollars.

Second, as custodian the government controls one lakh crore of what’s called enemy property. These are assets of people who’ve migrated to Pakistan. 49 years ago Pakistan sold-off its enemy property. India has still to do so. Now is the time, says Shah.

I’ll stop here. If I’ve explained properly this should be sufficient to understand the announcements the Finance Minister makes tomorrow. Of course, you’ll still need experts to determine whether she’s done the right thing or gone far enough. But that’s another subject.