At a time when credit growth at 5.1% was its lowest in 40 years, the union budget has done little to spur capital formation and drive investments and hence the budget presented by the NDA government on February 1, was a disappointment, said former finance minister P Chidambaram.
Analysing the budget at Loyola Institute of Business Administration (LIBA), he said "despite banks cutting interest rates, credit growth—which is a proxy for investment is at a 40 year low. This means that investors are unwilling to borrow and banks are unable to lend," he said.
The gross fixed capital formation (GFCF), he said has dropped to the negative zone in 2016-17. It is now (-)0.2%. It has been falling from 4.9% in 2014-15 to 3.9% in 2015-16. "This means that there is no positive investment is happening in India now. It also means that more factories are closing down than new opens being opened," he said.
Recalling NDA's promise of creating two crore new jobs, he said during 2015-16 1.5 lakh jobs were created. "That was their best year," he said. In the following year 2016-17 only 77000 jobs were created, as per data released by Labour Bureau claimed Chidambaram. "Of this 50,000 were government jobs. And 12000 jobs were lost in software, IT and communication," he said, adding that the budget did little to create jobs.
"The government has lost a huge opportunity," he said. When there was a need to cut indirect taxes to spur demand, the budget cut direct taxes that too for a small section of the people, that too a pitiful sum. "The pitiful cut of 5% in income tax will benefit only 1.98 crore tax payers,' he said, terming no changes to indirect taxes as a cardinal mistake.
"It is terrible. If you had cut indirect taxes, prices will get cut, that will increase consumption and drive demand. However, if direct taxes are cut, people will end up saving the tax in their bank accounts," Chidambaram said. The budget at best will ensure a GDP growth of maximum 6.5% in the 2016-17 and the same for 2018-19. "I do not see any significant change to that," he said.