The Union Budget for 2017-18 was presented in the Lok Sabha on 1st February, Wednesday. This is historic because it was presented a month ahead of the earlier date. This is a break from the past it ending a colonial legacy of ninety years as the railway budget was made a part of. But a Budget is hardly judged on these parameters. These are mere symbolisms with less significance. What matters most is whether the Budget has substantial measures to lift the economy, whether the Budget has some refreshing ideas to energise the economy, whether the budget promises actions rather than merely indicating intentions. If looked from all these aspects this Budget of Modi Government is like an old wine new bottle.
Presented in the backdrop of demonetisation, Trumpian economics in the form of promoting protectionist measures, geo-political uncertainty in Europe, and above all the slowing down of Indian economy during last fiscal and likely slow down in 2017-18, the announcements made in the Budget are very much text book prescriptive. Add to that the reality of populism politics in preparing the ground for General Election 2019 while earning some brownie points in soon to be conducted state assembly elections , the announcements do not excite much to the market. The success of these announcements will depend a lot on the implementation road map which is definitely not in the hand of the Finance Minister.
The pompous announcements towards increasing the allocation towards betterment of farmers, agriculture, rural development through either giving crop insurance, soil card or increasing the allocation of MNREGA are routine one if one follows basic economics of government expenditure. In addition, all the tomtomming about increasing the expenditure across all infrastructure ministry indicated the fact that the private sector in the country is not confident about investing in the economy. This is very much evident from the fall in the growth of manufacturing sector from 7.4 percent last fiscal to 5. 2 percent as projected in this fiscal as quoted by Economic survey released on Tuesday. Therefore, heavy public spending is a default choice. This is all the more logical when the government in the name of removing black money, corruption etc. undertakes measures such as demonetisation in the peak of the economic growth and thus staves the economy of around 0.5 to 1 percent growth in GDP. Time will be a testimonial to whether demonetisation will reduce corruption or not going ahead but the fact of the matter is that this definitely slowed down the economy from the pace of 7.5% to 8%. One may be selective in choosing the growth projections as made by various agencies such as World Bank, IMF or international rating agencies but there is nothing to be proud about being “an one eyed king in the land of blinds” rather it would have been better to focus on realistic measures as regards to promoting private investment through some direct measures such as across the board rationalisation of corporate taxes, incentivising the performing private sector players and thereby creating large scale skilled employment. Increasing allocations towards SCs/STs/North East Regions/Welfare of Women and Children are routine matter and if an analysis of all the budgets since independence will be made it will not be different. Such increase in allocations indicated the governments clear intention to play to the gallery of popular politics given the voting for the assembly elections to five states are happening in a week or ten days and will continue till mid-March when the budget will be on discussion in the floor of the parliament and government will go with full throttle in defending it and any one opposing it shall stand exposed and thus jeopardising their chances in these States. And here there is no guess for the State that the dominant partner in the ruling NDA government is aiming at.
The reduction in income tax rate from ten percent to five percent for the lowest bracket is like penny-wise pound foolish. Across the board rationalisation with increase in rates could have been thought of if the government is really keen about catching big fish tax evaders. Creating a fear of taxman and other such enforcement agencies towards ensuring transforming, energising and cleaning (TEC) India is like to be a failure as in modern times such repressive actions hardly works and sooner or later own subjects will fall a prey to such measures. The measures towards affordable housing, real estate are all expected and enough indicators were given in the December 31st Speech of PM to the nation. In fact, if one carefully looks into the Budget, it will not be out of place to comment that the actual contour of the budget was drawn on 31st December speech of PM and the FM has just done the repackaging of it with other sundry announcements so as to give it the legitimacy.
The FM’s increased hope about the benefits from the implementation of GST is understood. Perhaps for this reason the budget proposals are not extensive as regards to various indirect tax proposals especially on excise duties, customs duties etc. It is a different matter, that whether with multiple GST rates the GST in its present form actually qualifies as GST or not. Therefore, going ahead when the government starts its reach-out program with trade and industry the resilience of Indian trade and industry along with the different government bodies at different level shall be known. At the same time, the notion of cooperative federalism will be put to test when the actual disbursement to states towards their revenue loss will be made by the centre. Needless to mention, the overall macroeconomic benefit to the economy because of a single GST rate is proven at other parts of the world.
Given this it will not be out of place to have some element of suspicion on the actual figures pertaining to deficits in the economy. The government’s claim towards restraining fiscal deficit at 3.2 percent of GDP in the next fiscal along with reducing revenue deficit to 1.9 percent seems little difficult. However, no harm in giving credit to FM for this jugglery. The substantial reduction in current account deficit though looks romantic now but needs to be taken with a pinch of salt given the fact that there is likelihood of lower inflow of foreign capital to the country and thus putting pressure on dollar as evident from the intention of US Fed to increase its policy rates in 2017. Adding fuel to the fire will be the recent northward movement of oil prices.
Thus, weighed from a political economy point of view, the budget is one of the most apt budget given the contemporary socio-economic and political situation of the country where one has to be “Roman in the Rome” with symbolisms galore otherwise a lack lustier budget about which much ado may be made going ahead but about nothing.