The Union Budget for the financial year 2017-18 will be presented on 1 February 2017. The Cabinet’s decision to end the colonial-era tradition of presenting the Budget on the last day of February and advance it by about a month is mainly to help complete the legislative approval for annual spending plans and tax proposals before the start of the new financial year on April 1.
Most Opposition leaders are opposing the government’s decision to advance the Budget by a month, fearing that the move will be favourable for the ruling BJP contending in the Uttar Pradesh Assembly elections due by early next year.
Though budgets aren’t the only instruments to announce reforms, the nation is awaiting it since the Union Budget is the most important financial event in the country. In the backdrop of the recent macro-economic challenges and policy shifts, the nation awaits a budget that will accelerate economic growth and help fight black economy. It is also expected that Budget 2017-18 will focus on consolidation and improvement of existing programmes to ensure their completion ahead of the general elections in 2019, rather than announcement of new schemes.
With the historic decision to merge the rail and general budgets, there will be no need for separate Appropriation Bills as well as Vote on Account. The Budget need not necessarily be a conventional budget in view of the slew of policy shifts witnessed in the past three months. The finance minister has a great opportunity to present a game changer budget by making use of the opportunity generated by demonetisation and the government’s political will to fight black money. It could be expected that there would be adequate budgetary provisions to supplement the recent governmental efforts to curb the menace of black money.
Effective policy recommendations to weed out corruption and black money should be incorporated in the Budget. There is a strong case for boosting capital expenditure as public spending on infrastructure in India is too low. To minimise regional disparities, development of infrastructure in rural and underdeveloped areas ought to be initiated. It is important to stimulate savings that finance investment and bring capital accumulation that drives economic growth.
Demonetisation and associated policies help in the transition to a cashless economy. In the Budget, the Centre may announce a slew of measures to push for a cashless economy.
Incentives are on the cards for merchants promoting use of plastic money and income tax benefits could be offered to those making e-payments. With the ongoing digital push, much transparency is expected in financial transactions. To push digitisation, leading economists have suggested that a ceiling be fixed above which only digital payments or cheques should be used. Also, the government can help by creating a single app for all banks and digital incentives under Section 80 C of Income Tax Act 1961. At the same time, awareness about digitisation needs to be spread among the masses. Keeping in mind the low internet penetration in India, digitisation cannot be pushed beyond a point.
Though the finance minister has already hinted that Budget 2017-18 will not be a populist one, there are huge expectations regarding it. The Budget needs to boost the consumer sentiment by cutting taxes. Asper a recent report, the Centre is considering a proposal to revise the base Income Tax slab and increase it up to Rs 4 lakh per annum from the current Rs 2.5 lakh per year. It is also desirable to widen the tax base and reduce the tax slabs. Increase in indirect taxes will help widen the tax base but it might affect the poor. Lower tax rates would increase compliance and reduce the generation of black money. It is also expected that the Budget will not consider the proposal from some quarters to abolish the income tax.
The finance minister should not overlook social justice by denying substantial financial outlays for social sectors such as education, health and social security. In most of the preceding budgets, the allocations for social sectors such as health and education were raised only marginally. This marginal increase, after adjusting for inflation, often amounted to a decline in real terms. The social sector really deserves a push in its share in the budgetary outlay.
Whenever there was a resource crunch, successive finance ministers were compelled to cut the spending on the social sector while economic services like promoting growth and infrastructure. General services like salaries, allowances, defence and administrative works were untouched. Considering the crucial need for better health outcomes in the country, a minimum allocation of five percent of GDP is necessary for the health sector. Similarly, the funds for education should be increased from the current four percent of GDP to at least ten percent.
Indian agriculture is at the crossroads. The main reasons for slow growth and underperformance of the agricultural sector are declining public investment and inefficient institutional setup to provide inputs and services to our farmers. Farmers in the country are under severe stress with profitability in farming falling due to various reasons.
Successive droughts and falling commodity prices add to agrarian distress. It is expected that this Budget will continue the pro-poor and pro-farmer credentials laid down in the previous budgets of the Modi government.
As the finance minister said in his last Budget speech, “It is now time to think beyond food security and give back to our farmers a sense of income security.”
P M Mathew
is a Bengaluru-based professor of economics
Email: pmat2012@yahoo.com