Budget Test Amid Slackening Growth

On the eve of the presentation of the Union Budget, confident Narendra Modi likens it to him being evaluated by 125 cr people

Published: 29th February 2016 03:34 AM  |   Last Updated: 29th February 2016 09:14 AM   |  A+A-

Budget Test

CHENNAI:  “I have an exam tomorrow,” Prime Minister Narendra Modi admitted in his Mann ki Baat radio programme on Sunday, in an obvious reference to the Union Budget to be presented on Monday.

Giving a pep talk to motivate students appearing for board exams, Modi said he was ‘full of confidence’ ahead of this valuation by 125 crore people. He seems well prepared, and is moving ahead with a ‘free mind, without any tension of success or failure’.

b.JPGModi’s confidence comes amid a challenging environment. Even as India is among the fastest growing, the pace of growth seems slackening. Agriculture, on which a significant populace of rural India is dependent, is reeling under severe drought. India Inc is getting impatient over the delay in rolling out economic reforms, including the GST Bill. For foreign investors, Brand India is losing steam on multiple counts like lack of clarity on regulatory issues and uncertainty on retrospective taxes. Though India moved up the Ease of Doing business ranking, investors feel there’s scope for improvement on the ground.

bu.JPGPublic sector banks are undergoing a ‘deep surgery’ as advocated by Raghuram Rajan, governor, RBI, but the onus is partly on the government to recapitalise. Together, the 29 state-run banks need a staggering `1.8 trillion in the next four years. Then there’s infrastructure, where projects worth over `2 lakh crore are stuck either due to regulatory roadblocks or for want of capital.

bug.JPGSimply put, the NDA government’s third Union Budget is akin to a litmus test, one that team Modi is bracing up to present on Monday. It also comes at a crucial juncture where the global economy is growing at its slowest pace, and volatility has become a new normal among Asian economies like China and commodities like crude oil.

you-be-finmin-for-story.jpgWith private capital drying up, the government is compelled to boost spending to sustain growth. But not without increasing its tax revenue or by borrowing more. The latter is something economists are advising against. If income tax slabs are to be left untouched, meeting the fiscal deficit target of 3.5% next fiscal is impossible. The Economic Survey 2015-16, presented last Friday, almost hinted at a possible delay in fiscal consolidation, when chief economic adviser Arvind Subramanian recommended a 0.2-0.3% deficit reduction each year to reach the 3% target by March 2021, rather than 2018.

service tax rate may be hiked

To shore up revenues in order to meet increased expenditure, Finance Minister Arun Jaitley may need to raise indirect tax rates or introduce new taxes. Service Tax, raised to 14.5 per cent last year, may see a hike to prepare for the level of 18 per cent being envisaged in the Goods and Services Tax Bill.

Corporate tax likely to be cut

Jaitley is likely to fulfil his last year’s promise of gradual reduction of corporate tax from 30 per cent to 25 per cent over four years.


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