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Thursday, February 2, 2017

Budget 2017-18: Mr Jaitley, you gave little room to quarrel over …

Interestingly, amidst the adverse business environment across the globe that is peppered by growing protectionism and an equally unhappy domestic scenario that is dotted by corporates which are already overburdened with debt and banks with stressed balance sheets, Mr Jaitley, Finance Minister presented a well-balanced budget, which is sure to assure the international investors that India still continues to be the ‘bright apple’ of the world economy.  

Refreshingly, despite the elections are on for some States, Mr Jaitley, not being bugged by the usual populism, presented a budget that maintains fiscal discipline and yet offers sops to those at the bottom of the pyramid—met the fiscal target of 3.5% for 2016-17, that too, despite exceeding the expenditure targets on both revenue and capital accounts.

Of course, Finance Minister has disappointed those who hoped for a reduction in the corporate taxes. But in a shrewd move he has reduced the income tax for companies that are having an annual turnover of less than Rs 50 cr from 30% to 25%, which is sure to soothe the ruffled feelings of SMEs that were inconvenienced by the demonetization exercise.  A similar sop has also been offered to persons in the income slab of Rs 2.5 lakh to Rs 5 lakh by reducing tax from 10% to 5%. Simultaneously, he made an attempt to make good this loss and also perhaps address the issue of the rising gap between the rich and poor, he proposed 10% surcharge on the income tax of those in the Rs 50 lakh to Rs 1 crore bracket.

He has simultaneously increased the allocation under MGNREGA to Rs 48000cr—almost a rise of 25%. Indeed this is perhaps the highest allocation ever made under this head. Similarly, he has also increased the allocation to rural housing by a half to Rs 23 000 cr with an ambitious plan to construct one crore houses by 2019. An amount of Rs 19000 cr is set aside for rural roads. All this clearly points out the intention of the government: spend on welfare of the poor but with a definite focus on creation of assets.

He has slashed anonymous cash donations to political parties from Rs 20 000 to Rs 2000 per donor. Of course, this move could at best indicate the intent of the government to cleanse the political system but not in effect, for it can easily be evaded. Similarly, his banning cash transactions beyond Rs 3 lakhs may not achieve much, for the question would still remain: How to ensure this?  On the other hand it may reduce the demand for consumer goods, perhaps in the short run.

His allocation of Rs 10 000 cr for recapitalisation of banks is certainly not adequate enough to pull the ailing banking sector that is plagued with stressed balance sheets, unless he had some other idea of reaching out to their rescue. Similarly, his plans for confiscating assets of the defaulting borrowers is equally alluring for such provisions are already in existence in one form or the other, yet little is being accomplished all along because of poor  enforcement of laws.

His proposal to dismantle the Foreign Investment Promotion Board will go a long way in making doing business with India easy and it is also likely to boost inward foreign direct investment.

By pegging Indian Railways' capital expenditure for 2017-18 at Rs1.31 lakh crore, the highest ever, the finance ministry assured the concerned that combining the Railways'   budget with the main budget is not all that bad.    

Equally impressive is the fact of Finance Minister, ignoring the high level panel’s recommendation for deviations from fiscal deficit targets, targeting fiscal deficit and revenue deficit at 3.2% and 1.9% respectively for the year 2017-18, while enhancing capital expenditure by 25.4% over that of 2016-17. This would certainly be a challenging task, for he can no longer enjoy the benefit of falling oil prices, nor could he be sure of rising disinvestment proceeds of Rs 72500 cr as against 45500 cr that he could mobilise during 2016-17.

There is of course a ray of hope: if only he could realise the anticipated benefits from the demonetization exercise that the government undertook: additional collection of income tax under the Income disclosure scheme, and importantly levying of income tax  on deposits that have come into the banking system but not shown under  earlier tax returns.  Now that the ministry is sitting on a mine of data of the newly disclosed wealth, it has to expand the tax base by diligently unearthing the concealed income. At the same time it should not be over-enthusiastic in letting the tax officials from all rungs of the hierarchy cause tax harassment.    

Finally, coming to the question of what did the government do for growth, it must be admitted that it appears to have reconciled to growth in the zone of 7.0 to 7.5% and this appears to be sensible in a global environment where de-globalization winds are blowing strongly. The government perhaps aims to counter the political fallout of this by aiming more at redistribution.  And by giving a serious push for digitization of money transactions in a big way and thereby bring in the hitherto informal economy more and more under tax net, the government appears to be already at it.

Chalo, for once Mr Jaitley, staying the course, affording the fiscal responsibility and macroeconomic stability,  budget ko ek khubsurat mod de kar chodaa!


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