Finance Minister Nirmala Sitharaman’s sixth full-fledged budget, the first in the Narendra Modi-led government’s third term, faces criticism for not adequately addressing the pressing issues of Inflation, investment, employment, and consumption in the Indian economy. Rather than presenting a coherent framework to tackle these concerns and the long-term structural impediments to growth, the budget seems to perform a holding operation. Despite many constraints, there are specific positives.
The budget continues the focus on fiscal consolidation, targeting a reduction of the Centre’s fiscal deficit to 4.9 per cent of GDP in 2024-25, down from 5.6 per cent the previous year. This commitment to macroeconomic stability extends to controlling inflation and the current account deficit, which is essential for long-term sustainable growth. Proposals to abolish the angel tax for start-up investors, lower the corporate tax rate on foreign companies, and incentivize the shift to the new income tax regime are welcome measures. However, the budget also raises the capital gains tax and the securities transaction tax rate, responding to concerns about market instability due to overheated financial assets.
The Economic Survey highlighted the real challenges, particularly the need to create 78.5 lakh jobs annually and stimulate private sector investment. While the government’s capital spending is budgeted at Rs 11.11 lakh crore or 3.4 per cent of GDP, this public investment has yet to crowd in private sector investments significantly. The budget's job creation schemes, such as wage reimbursements for new entrants and allowances for internships, do not address the root cause of corporate reluctance to invest.
To resolve this, the budget needs to take steps to mitigate genuine risk concerns for companies, invest in education and skill development, and implement factor market reforms. Currently, it lacks the big ideas necessary to inspire investor confidence and prepare the workforce for future disruptions. With the introduction of Central Bank Digital Currency (CBDC) by the RBI, a new path forward emerges. CBDC offers a revolutionary way to address these issues by eliminating the need for traditional taxes.
If CBDC is required, the government can direct transfer to the expense head or individual as salary. This approach makes the government accountable primarily during elections, as spending will be transparent to the public. As the government will not tax, it is not answerable to the public until election day where the public will decide who to vote after seeing what the government spends on itself as well as on the public. If the politician has access to CBDC he or she doesn't have to ask for “Chanda” to finance his/her election campaign, which could be held online to lower costs, time, and remain true to the nation first & then themselves. No industrial lobbying with vested interest willl be required in return for :Chanda”. Inflation will be treated with a direct transfer of CBDC to consumers as well as producers, who would then need to produce more to eliminate any price-increasing shortages. In a deflationary situation, CBDC will be wired to buyers to encourage consumption, or surpluses can be exported, with these CBDCs then wired to producers. By removing commission agents between producers and consumers, both parties benefit—producers and farmers receive higher prices, and actual consumers pay lower prices, as there are no commissions or taxes involved. Commission agents will instead receive guaranteed interest payments of 11 per cent per annum, ensuring they can lead a comfortable life. Politicians with access to CBDC wouldn't need to solicit donations for their campaigns, which would be conducted online to reduce costs and time, fostering a nation-first attitude devoid of industrial lobbying. The only constraints on issuing CBDC would be the availability of resources.
Each unit of CBDC issued for production (supply) would match a unit of CBDC for consumption (demand), ensuring no shortage of CBDC, which would only need to be digitally typed in. If one has 1 crore INR and receives 11 per cent interest per annum, there would be 11 lakhs available. This amount could provide an unemployment allowance (UA) of 1 lakh per annum to 11 individuals. Therefore, the question arises: should one invest in MSME production or focus on generating consumption worth 11 lakhs per year? The government could support this by directly transferring funds to an unemployment pool and paying UA to citizens. All cash would be invited into banks, no questions asked, and then incinerated after shredding to prevent redeposit.
CBDC electronic balances would be fully guaranteed and earn 11 per cent interest per annum. Taxpayers would be credited for total taxes paid, adjusted for inflation, receiving a guaranteed deposit & with 22 per cent interest per annum. For NRIs, OCIs, and PIOs approached for hard currencies, similar deposits would attract 13 per cent interest per annum, mitigating any potential currency runs. These CBDC electronic balances could not be encashed or speculated upon and would only facilitate digital transactions. Reserves would be maintained in small denomination notes, and if these are not honoured, all international loan payments would be frozen.
There would be no need to buy foreign bonds or T-bills, as CBDC could be literally typed in & issued directly. The value of CBDC would be determined by what is grown, serviced, or manufactured domestically, not by gold. FDI will be invited in kind like in materials, equipment, complex electronics & machinery Whatever the expenses in India, the RBI issued CBDC will be provided.
This is a periscopic view of Planned and Organised Deficit Spending (PODS) CBDC. Additionally, the unemployed would receive allowances, helping to restore employment and production levels to pre-COVID capacities. The required supply growth would be studied and scaled up, potentially aligning with the Finance Minister’s announcement of a ₹5,000 monthly incentive for all three groups of employers. With the next budget due in just over six months, there is hope that the government will develop a more ambitious economic plan to meet the aspirations of India's young population and drive sustainable growth. The introduction of PODS CBDC could be a transformative step in this direction, offering a bold solution to the economic challenges facing the nation.
