For Finance Minister Arun Jaitley, preparing the Union Budget 2017-18 must have been a ghastly exercise. The task was simple, really. Create jobs, get investment and revive growth. Only, it was set in a challenging global and domestic backdrop. There’s a road ahead, but the path’s unclear. There are no maps or instructions to navigate unstuck. Nevertheless, Jaitley somewhat livened the gloomy future stretch with much-needed personal and corporate tax tweaks, and used the quaint, old-fashion mix of populist and growth-oriented announcements.
Budget 2018 is unique on multiple fronts. For the first time since 1924, the Railway Budget was tucked inside the General Budget, and the traditional plan and non-plan classification was junked. It comes just two months after the self-inflicted wound of demonetisation that punctured growth and amid external headwinds. Yet, in his unshowy way, Jaitley positioned himself as a finance minister for hard times proposing an expansive budget of Rs 21 lakh crore for the financial year 2017-18.
The biggest dole went to the middle-class and medium enterprises. Personal income tax is down to 5 per cent for people whose earnings are betweenRs 2.5 lakh-5 lakh. The deal is sweetened further with a simpler one-page tax form. Putting taxpayer needs ahead of his ambition for higher tax collections, Jaitley, trimmed the corporate tax slab to 25 per cent for Micro, Small and Medium Enterprises (MSMEs), but others have to wait. In all, Rs 20,000 crore revenue will be foregone, but the finance minister hopes the tax net will widen triggered by demonetisation and rising digitisation. He refused to tinker with excise duties or service tax considering the incoming GST.
In line with tradition, the Budget delivered another dollop for agriculture setting the credit target at Rs 10 lakh crore for FY18. With favourable monsoon and increased sowing, food inflation should fall in line. Some loose change is also chucked on dairy, micro irrigation funds, besides increasing coverage under the Fasal Bima Yojana scheme. A record Rs 3.96 lakh crore expenditure was marked for infrastructure, as the NDA government, like others, believes it amounts to a growth strategy, even if past allocations delivered little and added fewer jobs. A special Rs 1 lakh crore safety fund for the Railways appears timely. Transport sector, including the Railways, got Rs 2.41 lakh crore. For the treasury balancing the books, this seems costly, but unavoidable.
Typically, governments tend to loosen the purse strings to lift a sagging economy. The Indian context is precarious and the figures speak for themselves: growth, down; investment, down; jobs target, failed; revenue target, dicey. Still, Jaitley and his wise men foresaw only the slightest of setbacks and pursued higher capital expenditure, setting a fiscal deficit target of 3.2 per cent of GDP for FY18 and 3 per cent for the year after. The Fiscal Responsibility and Budget Management committee recommended a debt-to-GDP of 60 per cent, which Jaitley promised to adhere to and the panel’s escape clause of 0.5 per cent for deficit will be handy, should private investment and tax revenue go out of whack.
As for banks, the Budget was a failure in expectation management. Public sector lenders are crumbling under the weight of bad loans, banks need over $1.6 trillion capital and Jaitley’s Rs 10,000 crore fire-fighting fund looks like a water pistol. Increased NPA provisions will reduce tax liability, but are inadequate. Jaitley’s fourth Budget contains economic logic embroidered with political poetry, but falls short of decisive action plan just where it’s needed. Keeping a check on big-time economic offenders, Jaitley announced legislative action to confiscate assets, but without a go-to strategy. Multiple tribunals will be rationalised, but again, it’s only a proposal. He mentioned youth, but promised no jobs.
The two-hour speech sounded cautious, unflashy, with sense of humor deployed sparingly. But Jaitley managed to pull a rabbit out of his hat to cleanse the political funding scenario restricting cash donations at an astonishing Rs 2,000, while the idea of electoral bonds is innovative. Other feel-good sops include building one crore houses for the poor, a record Rs 48,000 crore allocation for MNREGA, infrastructure status to affordable housing and capital gains tax exemptions on property to boost demand. Continuing with the clampdown on black money, Jaitley banned cash transactions above Rs 3 lakh stepping up accountability. For investors, there are no spoils. In a U-turn, Minimum Alternative Tax will not be abolished, and uncertainty on long term capital gains was laid to rest.
Designed as an outcome-based Budget, Jaitley can now distinguish day-to-day spend and investment. With right policy choices, he can even link growth to poverty removal. The surprise in Budget 2018 is there are no surprises. It’s a downbeat statement, but the understated benefit is fiscal prudence and mindful capital expenditure. If good economics leads to good politics or vice versa, this Budget should help Jaitley inch closer to an economy that works for everyone.