Many positives in new Budget
The Union Finance Minister has struck a new chord on growth through the rural-farm sector. The Government expects it to pay well and be a real booster of GDP from the expected Rs16,847,455 crore. If this happens, the Budget pattern will change from 2018-19
It has been a tight-rope walk. Union Minister for Finance Arun Jaitley had the onerous aim of reviving the economy as also ensuring that fiscal deficit remained under control. It is a difficult task to push growth on shoe-string incomes. The expectations were high from his 2017-18 Budget.
International institutions like IMF-World Bank and rating agencies have been keeping a hawkish eye on the expenditures. Jaitley has certainly kept them on his right side with 3.2 per cent fiscal deficit target.
All the same, he has tried to push growth through infrastructure spending of Rs3.9 lakh crore and the rural-farm route — a demand that his key constituencies have been advocating. Total support to rural and farm sector rises by 24 per cent to Rs1.87 lakh crore, including Rs56,992 crore for agriculture (up from Rs50,437 crore in 2016-17). This is hoped to hike private investment as well.
The Budget has been touted as pro-poor as it gives a push to market reforms in agriculture, increased funding to crop insurance by Rs9,000 crore and sets a higher target for farm credit to Rs10 lakh crore to be funded by banks. It has helped the farm sector growth rise to four per cent after two years of low growth. It is the largest GDP booster in an otherwise dormant scenario.
This can be a game-changer politically as well. If it sells, it can impact the political fortunes in some of the poll-bound states of Uttar Pradesh, Uttarakhand and Punjab.
If the farm and rural sectors can maintain this growth, the economy of the countryside will become the base for GDP growth in the coming years. It would be a major shift, as such a development leads to improved living and job conditions.
The Budget for this reason increases allocation on rural development to Rs1.28 lakh crore (from Rs1.02 lakh crore in 2016-17) and the crucial rural employment generator (MGNREGA) to Rs48,000 crore from the previous year’s Rs47,500 crore. In actuality, his expenses may increase by another Rs10,000 crore. There is soft criticism for giving out this ‘dole’, but MGNREGA has helped raise rural incomes, and of late, in asset creation.
It is the single largest job creator. It employs 18.2 crore, which is 15 per cent of India’s population. The World Bank’s The State of Social Safety Nets 2015 report has ranked MGNREGA as the world’s largest public works programme.
Rural housing also gets a Rs8,000 crore boost, and has been allocated Rs23,000 crore. It is likely to end concentration of the housing market from urban to rural centres. The stress on low-cost housing in urban centres as well is likely to boost the housing industry.
The other focus of creating skilled, educated India, easing for foreign investors by doing away with the Foreign Investment Promotion Board (FIPB) that reduces a layer of bureaucracy, and increasing outlay for national highways to Rs64,900 crore (from Rs57,976 crore in 2016-17); new integrated infrastructure planning paradigm comprising roads, railways, waterways and civil aviation with a provision of Rs2.41 lakh crore for the transportation sector as a whole, a combined rail and Union Budget, and reduction of tax rates to 25 per cent for medium and small industries, are seen as positive steps.
But this has also raised unhappiness among large corporate as they were expecting the Finance Minister to keep his promise to them, given earlier, to cut direct tax burden. Industrialist Rahul Bajaj, who took a contrarian view, said the Government was possibly waiting for the Goods and Services Tax (GST) to happen. The industry is cautious as it is expecting higher indirect taxes once GST is rolled out.
At a time when the Government doled out the Seventh Pay panel benefits to its employees, it was expected that his income-tax reforms would be drastic. Halving the tax rates up to five lakh rupees income, has been welcomed. But the threshold of Rs2.5 lakh has remained. The relief to most tax-payers above five lakh rupees annual income at Rs12,500 (or as some say Rs14,806) is minimal. The purchasing capacity of the salaried class has been constricted.
The proposal to strengthen tax deduction at source (TDS) provisions through a disallowance on expenditure, may be a bit too tough. At a time when the economy is facing severe problems, such steps will further hit the market growth.
The Government should have instead gone for a major tax reform and aimed at higher fiscal deficit to boost the market, increase manufacturing and other industry-related growth. The rate for the miniscule taxpayers stated to be around 1.9 per cent is too high. This is the time to re-think about TDS. If the Government insists on TDS, it should also consider paying market-interest rates for deductions that becomes due after a year. The TDS is a virtual reduction of income and makes the increase in salaries a mockery. People are not born only to pay taxes.
Higher surcharge of 10 per cent on incomes above Rs50 lakh and 15 per cent on one crore rupees, though sounds socialistically and equitable, also paves the way for tax management, a euphemism for tax evasion. It empowers the Income Tax department to harass high net worth individuals. It calls for a rethink.
Disquiet is there as the Government says it has identified 18 lakh individuals who will be required to divulge the source of large cash transactions post demonetization as part of the tax department’s Operation Clean Money/ Swachch Dhan Abhiyan. This is expected to increase tax terror if not handled with care.
Yet, the Finance Minister too is constrained. His earning comes in 2017-18 maximum from income tax at Rs44,1255 crore, followed by excise duties of Rs40,6900 crore and service tax of Rs27,500 crore. He earns Rs26,903 crore from minority stake sales in public sector undertaking, against the expected Rs56,500 crore in 2016-17.
His kitty is small. Despite the poll-time assurance of doing away with income tax, he finds his hands tied. It calls for a national discussion on how to reduce the tax burden on individuals as well as widen the tax network. He does not need to spend on promoting Digidhan. Let it happen gradually.
Jaitley has struck a new chord on growth through the rural-farm sector. The Government expects it to pay well and be a real booster of GDP from the expected Rs16,847,455 crore. If this happens, the Budget pattern will change from 2018-19.
(The writer is a senior journalist)