The first two budgets presented by Finance Minister Arun Jaitley were intended to ride an economy in ICU — beset with scams, staggering fiscal and external deficits and policy paralysis — out of an impending crisis. His third budget was impacted by demonetisation (DM), and the fourth was disturbed by the introduction of the Goods and Services Tax (GST). The present budget is the first one that is not vitiated by any disturbance nor burdened by any backlog of the past. Actually, the benefits of the two tectonic shifts in the economy flow into the budget for the year 2018-19, which is clearly founded on an optimism born out of the return of manufacturing, the rising services sector and a GDP growth that is back on track.
While significant challenges to the economy, such as the non-performing assets in the banking sector and the current account deficit in the external sector remain, the two far-reaching measures have indeed fundamentally altered the character of the Indian economy. The positive impact of the two bold decisions — which the economic survey brings out and the Finance Minister alluded to in his speech — is evident in the making of the present budget.
The four significant beneficial fallouts of DM and GST are: (1) A 50 per cent increase in indirect taxpayers and 1.8 million new direct taxpayers; (2) formal sector jobs, as revealed by the combined data of GST filings and Employees Provident Fund Organisation, are discovered to be as high as 12.5 crore and not just 2.95 crore as so far believed; (3) the rise in the personal tax buoyancy ratio — the ratio of the rise in collection of personal taxes to the rise in GDP — from an average of 1.1 in seven years from 2009-10 to 2014-15 to 1.91 in 2016-7 and 2.11 in 2018-19 (till Jan 15, 2018) which indicates greater tax compliance, netting additional revenue of Rs 90,000 crore in the two years; and (4) the massive formalisation of the economy that is underway thanks to the two measures.
The budget has something for every section of Indian society. It has a huge and far-reaching agenda for agriculture and rural areas. It fixes remunerative prices for farmers with a profit margin of 50 per cent over cost. It seeks to organise, on a digital platform, the unorganised village haats, in which most agri-products are sold, into organised agricultural markets — considered impossible a few years back. It provides huge benefits for women, Scheduled Castes and Tribes and other deprived sections. It promises to deliver the world’s largest government-provided public health insurance to some 10 crore families and their 50 crore members.
It contains triggers for growth in formal-sector employment. It intends to increase the MUDRA finance to the unincorporated sector by Rs 3 lakh crore. It talks of advancing the rural road construction target from 2022 to 2019, having achieved most of it by now. It talks of a staggering highway construction performance of 9000 km in the ongoing year and sets a much higher target for the future. The performance the Finance Minister cites to show how the promises of the past have been accomplished reinforces the credibility of the future proposals. The budget seems to be an in-depth and intensely thought-out exercise undoubtedly with the 2019 election in view. And yet there is nothing in it which could be called populist.
The only segment which might feel let down a bit is the salaried middle class which is definitely entitled to greater attention. Otherwise, every proposal in the budget has micro- or macro-economic justification.
Buoyed by the promise of higher tax collections, the Finance Minister has forecast a reasonable fiscal deficit of 3.3 per cent, which promises to bring down government debt to 40 per cent of GDP. The budget boldly brings back the much-justified capital gains tax regarded as having the potential to dynamite the all important stock market. In sum, it is difficult to fault the economic foundations of the budget. On the political side, as the budget seamlessly touches Indian society as a whole and unveils the most ambitious health security scheme and taxes the unearned capital gains tax — untaxed for decades — it is clearly equitable.
The Left cannot fault it and the Right cannot grumble about it. On the face of it, it is difficult to deny full marks to the FM. But a caveat: this conclusion is tentative as it rests on only the Jaitley’s speech and as it is not based any detailed study of the budget proposals and numbers in fine print. This is the first impression, trusting what the FM has said.
The author is a commentator on political and economic affairs