All budgets are in a sense compromises with different stakeholders. Whether it is a housewife making a budget for the home or a chief finance officer of a company or Finance Minister for the government.
The core issue is that expenditure is always greater than revenue. The government can rely on the Nasik press and corporates on banks, but housewives have no such recourse.
The government has significant number of stakeholders like corporates — domestic and foreign — farmers, small entrepreneurs, salaried employees and retirees. Satisfying all stakeholders is a herculean task. In our system, unfortunately, the movement of the Sensex is equated to economic progress even though the share in the GDP of all listed companies will not be more than 10 per cent. Since in USA the role of corporates is very large it is assumed by US-educated economists and experts that the case is similar in India.
Interestingly, after a long time the focus of the budget was on agriculture and the rural sector, social sector and infrastructure. One of the important areas in focus is irrigation. It is really sad that even after nearly 70 years of independence only 40 per cent of our cultivated land is irrigated and rest depend on the vagaries of rains. This budget suggests that more than 28 lakh hectares of land will be brought under irrigation in the next few years. A dedicated long-term irrigation fund will be created under NABARD with an initial corpus of Rs 20,000 crore. Equally important is how prudently the funds are going to be used, since our past experience in irrigation is not encouraging even in progressive states such as Maharashtra. But this time we hope things will be different since the first Constable of the treasury (pradhan sevak!) is the PM. Given the price increase in pulses and its impact on the recently concluded Bihar polls — the government has allotted Rs 500 crore for pulse outputs.
Roadways are another area of focus. The government has allocated Rs 19,000 crore under roadways schemes. The Government has committed to 100 per cent village electrification by May 1,2018 — a full year before the next general election.
The philosophy underlying the budget is that the government rightly thinks that if the three needs of water, power and roads are fulfilled, then society will take care of other things.
Of course there is an initiative for financing higher education wherein a bank similar to the National Housing Finance may come into existence. But the cost of LKG and UKG education is equally skyrocketing and perhaps this bank can take care of the needs of all education and skill formation like the ITIs.
On the tax front, there has not been any major change other than an additional benefit of Rs 3000 to those whose taxable income is below Rs 5 lakh and an additional benefit of Rs 50,000 for loans up to Rs 35 lakh, not to mention home buyers of up to Rs 50 lakh worth homes.
Another area is tax exemption of commutation of up to 40 per cent in the National Pension Scheme. But for new entrants PPF becomes the EET (exempt/exempt/tax) unlike the current EEE. This needs a re-think since the PPF acts as the first pillar of old age security in a country like India where more than 80 per cent do not have any mandated pension benefits, since a large part of the work force is self-employed.
Two areas which required attention are those pertaining to having a separate regulatory framework for the Mudra initiative and steps to curb the generation and holding of black money. In his budget speech on Monday, Finance Minister Arun Jaitley reported that an amount of Rs 1 lakh crore had been sanctioned to 2.5 crore borrowers by February 2016 under the PM’s Mudra scheme and had proposed an increased allocation of Rs 1.80 lakh crore for the same. But for this to succeed there is a need to create a Mudra bank similar to the NHB for integrating dispersed credit markets. Similarly by demonetising Rs 500 and Rs 1000 notes and by making the holding of cash beyond, say, Rs 20 lakh an offence, one could have addressed the issue of domestic black money.
Most important is that no scheme has been named after politicians in power unless it originated in earlier regimes — wherein more than 1000 schemes/universities/roads/airports/hospitals were named after members of the Nehru family alone. From that point the budget has been a welcome departure.
One can say safely that this is a budget by Prime Minister Narendra Modi and he has definitely passed with flying colours, as, in his address to children, on February 28 he had mentioned the budget as his exam.
This budget made D Raja of the Communist Party of India (CPI) to comment that it had given no benefits to the corporate sector. This reaction is interesting and intriguing. His party’s late leader A B Bardhan caustically commented “Let the market go to dogs” in 2004 when the first UPA government was to be formed — a government which was presumably run from Alimuddin Street of Kolkata (CPI-M) and Gopalapuram of Chennai (DMK). Either the CPI has moved far away from its revolutionary roots or the BJP has moved away from its big business/financial markets obsession. Maybe it’s both!
Professor of Finance,IIM-Bangalore
E-Mail: vaidya@IIMB.ERNET.IN