New Paradigm Budget
TIGHT ROPE WALK FOR FM
By Shivaji Sarkar
It is a tight rope walk. Finance Minister Arun Jatiley has the onerous aim of reviving the economy as also to ensure that fiscal deficit remains under control. It is a difficult task to push growth on shoe-string incomes.
The expectations are far too high from his 2017-18 Union Budget. International institutions such as the IMF-World Bank (WB) and rating agencies are keeping a hawkish eye on the expenditures. Jaitley has certainly kept them on his right side with 3.2 per cent deficit.
All the same, he has tried to push growth through infrastructure spending of Rs 3.9 lakh crore (Lcr) and rural-farm route, a demand that his key constituencies have been advocating. Total support to the rural and farm sector rises by 24 per cent to Rs 1.87 Lcr, including Rs 56,992 crore for agriculture (up from Rs 50,437 crore in 2016-17). It is hoped to hike private investment as well.
The Budget is touted as pro-poor as it gives a push to market reforms in agriculture, increased funding to crop insurance by Rs 9000 crore and sets a higher target for farm credit to Rs 10 Lcr to be funded by banks. It has helped the farm sector growth rise to four per cent after two years of low growth. This is the largest GDP booster in an otherwise dormant scenario.
Politically it may turn out to be a game changer as well. If this sells, it may impact the political fortunes in some of the poll-bound States of Uttar Pradesh, Uttarakhand and Punjab.
If the farm and rural sectors could maintain this growth, the economy of the countryside could become the base for the GDP growth in coming years. It would be a major shift as such development leads to improved living and job conditions.
The Budget for this reason increases allocation on rural development, to Rs 1.28 Lcr from Rs 1.02 Lcr in 2016-17 and the crucial rural employment generator (MGNREGA) to Rs 48,000 crore from the previous year’s Rs 47,500 crore. In actuality, his expenses may increase by another Rs 10,000 crore. There is soft criticism for giving out this “dole”, but MGNREGA has helped raise rural incomes and of late also asset creation.
Undeniably, it is the single largest job creator. It employs 18.2 crore, 15 per cent of India’s population. The WB report The State of Social Safety Nets 2015 has ranked MRNREGA as the world’s largest public works programme.
Rural housing also gets Rs 8,000 crore boost and has been allocated Rs 23,000 crore. This is likely to end concentration of the housing market from urban centres and see a shift to rural centres. At the same time, 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 procedures for foreign investors by doing away with Foreign Investment Promotion Board (FIPB) which reduces a layer of bureaucracy and increasing outlay for national highways to Rs 64,900 crore from Rs57,976 crore in 2016-17; new integrated infrastructure planning paradigm comprising roads, railways, waterways and civil aviation with a provision of Rs 2.41 Lcr 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.
On the other side, this raises unhappiness among large corporate as they were expecting that Jaitley would keep his promise to cut the direct tax burden, as assured to them earlier. As industrialist Rahul Bajaj took a contrarian view, the Government is possibly waiting for the GST to happen. The industry is cautious as it is expecting higher indirect taxes once GST is formally 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 Rs 5 lakh income has been welcome, but the threshold of Rs 2.5 lakh has remained. The relief to most tax payers above Rs 5 lakh income at Rs 12,500 (or as some say Rs 14806) is minimal. The purchasing capacity of the salary earners 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 would further hit market growth.
Instead, the Government should have 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 rethink about TDS. If the Government insists on TDS, it should also consider paying market-interest rates for deductions that become due after a year. The TDS is a virtual reduction of income and makes the increase in salaries a mockery.
Remember, people are not born only to pay taxes. Higher surcharge of 10 per cent on incomes above Rs 50 lakh and 15 per cent on Rs 1 crore though sounds socialistically equitable, it paves the way for tax management, euphemism for tax evasion. It empowers the I-T department to harass high net worth individuals. This definitely calls for a rethink.
Disquiet is already there as the Government says it has identified 18 lakh individuals who will be required to divulge the source of large cash transactions post demonetisation as part of the income-tax department’s ‘Operation Clean Money/Swachh Dhan Abhiyan.’ This is expected to increase tax terror.
Yes, the Finance Minister too is constrained. His earning comes in 2017-18 maximum from I-T at Rs 441255 crore followed by excise duties of Rs 406900 crore and service tax of Rs 27,500 crore. He earns Rs 26903 crore from thorough minority stake sales in PSUs against expected Rs 56,500 crore in 2016-17. His kitty is small.
Despite the poll-time assurance of doing away with I-T, he finds his hands tied. This calls for a national debate 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 in growth through the rural-farm sector. The Government expects it to pay well and be a fast booster of GDP from the expected Rs 16847455 crore. If this happens, the Budget pattern will change from 2018-19. — INFA
(Copyright, India News and Feature Alliance)