Why the Union Budget 2017 did not have any big bang announcements

We saw the first Union Budget which was preponed by a month to February 1. It was also the first budget after the demonetisation exercise, which caused hardship to the common man, killed a large portion of the black currency economy. Further, it was the budget just before 5 states went to elections, most notably being Uttar Pradesh, which had virtually single-handedly ensured that BJP would get an absolute majority in 2014, by giving BJP more than 70 MPs. Understandably expectations were high.

By now PM Narendra Modi and his Government have earned the reputation of being capable of doing the unthinkable. The surgical strikes on Pakistan and the massive demonetisation exercise have lead people to believe that this Government can take daring decisions. Such feelings made people believe in ridiculous rumours during demonetisation, including that the Rs 2000 note had a chip in it, and that bank lockers would be targeted next. Such a reputation also gives rise to massive expectations, especially from the Union Budget.

In the exercise of building expectations, the media too plays its part. The Economic Times had published what they thought would be the tax rates. The Indian Express confidently reported that Service Tax would be hiked to 16-18%. Bloomberg Quint claimed that “The Tax Changes In Budget 2017 Are An Open Secret”. The Economic Times also mooted the idea that the Universal Basic Income Scheme has gained currency.

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Eventually Budget 2017 did not bring in any of the above changes, some of which were quite radical.

In fact, as our columnist Aashish Chandorkar rightly pointed out, the budget belied expectations:

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.

One of the reasons, why the Finance Minister may have opted for an almost muted, incremental budget could be the fact that this budget is uniquely placed in between 2 storms which the Indian economy has faced/will face.

The first storm is over. Demonetisation impacted practically all businesses and even the common man. While the impact has not been as negative as expected in some sectors, certain other sectors may have still seen some pain, and may even still be recovering from the shock. It is not good logic to give more shocks to a person recovering from a major one. The Union Budget 2017 ensured that.

The second storm is yet to come. Goods and Services Tax, which will replace a host of indirect taxes and bring a totally new regime of taxation in India, is primed to be introduced in the coming months. It may get delayed by a few months but it is certain to come within the next 6 months or so. If you thought demonetisation was bad for the informal or cash economy, then GST will be worse.

Even the regulated sector will have to redraw their entire business plan due to GST. Entire supply chains will have to be reworked. Past business decisions will no longer seem to be right. It will be a major disruptor, the impact of which could be felt for 6 months to even a year.

It is possible that the Finance Minister has sensed this and has decided to step of the pedal for Budget 2017, which saw some high level tinkering, some incremental reforms, so small adjustments in the direction which the budget has already been given, and no major big bang moves.

If the stock markets are to be considered to be an indicator, in spite of this “low-key” budget, the markets reacted positively to this budget, with the Sensex shooting up by 486 point on the budget day. One major reason for this spurt is certainly the fact that the budget did have much shocks i.e. many of the fears floating around did not materialise e.g. levies on capital gains did not occur, no tax exemption withdrawals for indirect capital gains of foreign portfolio investors, service tax was not increased to 18%. Sure there were many positives too, but the lack of any radical game-altering negatives also played a part.

Political analysts would see the budget as a missed opportunity to shower poll bound states with goodies, but it appears the people in the Government have decided to not take the populist route, instead focus on fiscal discipline and step-by-step reform. To quote Aashish Chandorkar once again, “Mr. Jaitley batted through the 30thto 35th over milking the opposition”.

This only makes us wonder, will the next budget be one of the slog overs?


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