The Union Budget 2017-18 was primed to be explosive – income tax cuts, banking transaction tax, securities transactions tax, long term capital gains tax, universal basic income, demonetization windfall – there was a whole bunch of things discussed, proposed, and speculated. And now, eventually all junked.
The nation – supporters of the government and the detractors alike – waited with a bated breath assuming Finance Minister Arun Jaitley will deliver a Dabangg budget – a Salman Khan at his caring, scheming, and edgy best. Instead, Mr. Jaitley has delivered a safe, defensive, conservative, and a wait and watch budget which gives a Hum Saath Saath Hain feel – a mild, please most, annoy least Salman Khan of the Rajashree Productions version.
What’s negative or unimaginative is the obvious. There is nothing much for the poll-bound states. That’s already a budget made for poor politics – good judgment has little space in governance anyway! The announcements of December 31st and the income tax cuts likely to benefit the lower middle class income tax payers are the only arsenal the ruling Bharatiya Janata Party (BJP) will have to take to the voters.
There is no demonetisation linked new stimulus, though a lot of the extra capex and Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) will be targeted as a counter. But the political space on the issue was ceded by not creating labels and buckets with direct links.
Also, the government decided to play it completely safe. Perhaps waiting for the Goods and Services Tax (GST) disruption, the government stuck to making top level announcements, creating few new schemes and presented an incremental view to consolidate. If this was a one day international game, Mr. Jaitley batted through the 30th to 35th over milking the opposition – to use a Ravi Shastri analogy.
On the macro-economic front, the government decided to continue on the path of fiscal consolidation. Fiscal deficit of 3.2% next year, revenue deficit of 1.9% and future promise of achieving 3% fiscal deficit should please the India focused economists from Mumbai. The Foreign Portfolio Investors got their clarity on the taxation on securities traded outside India – this should minimize the op-ed noise which was very loud in December. The allocations for the states will further go up this year, a welcome step.
The thrust on rural and agricultural spending is the big story. The MGNREGA allocation will be a record 48,000 cr. The emphasis will be on specific assets and not just on wage payments. This is a huge commitment, and it is quite possible MGNREGA morphs into a universal basic income (UBI) over the next few years, where universe implies rural universe.
Increased allocations for rural roads and affordable housing with relaxed norms for what constitutes affordable outside is aimed at boosting construction activity in the hinterland. There were announcements around making drinking water safer, linking upgrade in rural drinking water infrastructure to sanitation and creating a gram panchayat level tracking and monitoring index. The actual policy and implementation should make for interesting reading in this space.
Boost for jobs specifically was limited to announcements around packages in textiles and leather and footwear industries. The Pradhan Mantri Kaushal Kendras will be extended to 600 districts and this should see more private participation for skilling youth. There were some announcements on a National Testing Agency, new medical seats and investments in digital platforms for learning.
The indication on treating transportation as one big subject was a positive. The 2.41L cr allocation across railways, roads, inland waterways and civil aviation was perhaps stated for the first time as an integrated number. If this leads to more coordination and lesser bureaucracy over the next few years, it will be a great move.
There were no fancy announcements on railways or metro trains and no cut down of expenditure on roads – the focus continues to be on creating new infrastructure, boosting core sectors and chasing the revival of the illusive investment cycle. Creating a fund for railway safety is a good idea. Focus on BharatNet with a more realistic target of connecting 150,000 gram panchayats on the broadband network should be welcome – this target can well be achieved realistically given the resources and expertise available.
The government stressed on the probity plank via a new mechanism to fund political funding. Electoral bonds with anonymous investments will be launched and cash donations for political parties over Rs 2,000 will be deemed illegal. The intent to act against issuers of bounced cheques is a good statement to make. Not allowing cash transactions over Rs 3,00,000 is a good idea, though that limit needs to progressively come down.
There are a few new thoughts – targeted spend to counter deadly diseases, a new pilot for Aadhar linked health record for senior citizens, abolishing the Foreign Investment Promotion Board (FIPB), land monetization to develop smaller airports, low noise divestment through Central Public Sector Enterprise (CPSE) exchange traded funds (ETFs), two new strategic crude reserves, enhanced defense spending, forward markets in agriculture integrating the Electronic National Agriculture Market, listing Railways CPSEs and doubling MUDRA covered lending.
The direct tax changes are obviously helpful but only a small step. Small firms paying less tax and earners less than Rs 5,00,000 annual income paying less tax are both great steps. Offsetting the tax revenue loss through penalizing those earning more than Rs 50,00,000 is a terrible idea, but then with hardly a million or two tax filers in that category, there is almost no political impact of such bad decisions. Perhaps before the next election, the government may want to co-opt the rich, but given how moneymaking is treated in India, no one should bet anything on it!
Structurally, killing the railway budget, the plan and the non plan classification, and allowing the budget allocations to be used before the monsoon onset by bringing the budget presentation forward are good themes. Hopefully another government will not undo any of these.
The TV channels hunting TRPs, newspapers waiting for streamers, and opposition waiting to label government as profligate and big-talking will be disappointed. Those looking at the budget as a vehicle to genuinely overhaul social problems – healthcare and education and to name two – will be disappointed as well.
This is an apolitical, conservative and a defensive budget. It reduces the importance of budget in the general policy making which in itself is not a bad thing as long as legislative action continues. Will it?