The Union Budget does tend to be a lengthy affair by tradition. The speech goes into 40 odd pages with several paragraphs on achievements of the government followed by specific allocations for various sectors, especially the socially relevant ones even if the amounts are very small. Along the way the guiding slogan, which will probably be ‘Make in India’ this time, is reiterated to show the future direction.
Ideally, we should move over to a crisp power point presentation where the Budget at a glance is presented followed by slides on the main tax and expenditure measures. After hearing the long speech one still has to wait to download the documents to get a grasp of numbers. It is, however, unlikely that the approach will change this time.
We always tend to expect too much from the Budget and the wish lists include every possible action on lowering taxes, enhancing concessions for everyone and spending more in areas of productive activity and fewer disbursements on what is disparagingly called non-development expenditure. And all this has to be done by controlling the fiscal deficit and borrowing of the government so that monetary policy is not affected by these measures.
What can we, realistically speaking, expect the budget to deliver?
There are five areas where we can expect a strong stance and direction. The first is fiscal deficit where the ratio of fiscal deficit to GDP will be the starting point and indications are that the path which was reinforced last time would be followed with the target being placed at 3.6 percent this year.
This should not be an issue given that crude oil prices have come down which were the stumbling block in the past. Therefore, the overall borrowing programme of the government would be within range depending on the GDP growth rate assumed for the year which is likely to be 13-13.5% for FY16.
Second, the focus will most certainly be on improving the delivery of all social programmes which are essentially the food subsidy and NREGA venture. As it entails a total expenditure of around Rs 1.4-1.5 lakh crore, given the displeasure expressed by everyone on the implementation, we can expect revision in the form of the direct cash transfer replacing grain sales for PDS and NREGA being made more constructive through creation of public goods.
Third, disinvestment will continue to be high on the agenda of the government and link with the move to make banks more independent of the government the target would be similar to that last year and we can think of another R 40,000-50,000 crore being targeted this year too.
Fourth, a problem we are confronting is low level of savings which will be critical once the economy picks up and funding is required. This will mean that the Budget would enhance the scope under Section 80C and probably also enhance the limit for tax exemption. The latter will help to also increase consumer spending which is low today.
Fifth, the Make in India campaign combined with creation of 100 smart cities will be the crux of the growth push coming from the Budget. The sectors that can look forward for sops would be: power, renewable energy, ports, roads, warehousing and real estate. These sectors will probably receive support through higher allocations in the expenditure plans.
As the Make in India campaign is centred on several thrust sectors it would not be possible to address issues of all of them and the benefits would be coming more from the indirect channels where these benefits percolate back to them. Concessions in these areas would be in the area of tax holidays, SEZs, limited duty cuts for specific sectors and enhanced government expenditure to the extent of bringing in private participation.
Now there are also a lot of expectations that may not be addressed in the Budget and therefore, we can list 5 steps which we should not expect on 28 February.
First no major changes in the tax structures should be expected as the DTC (direct tax code) and the GST (goods and services tax) are not on the table for discussion at present. Marginal tinkering to provide incentives is the best that may be expected in the context of ‘Make in India’. Correcting the inverted duty structure in specific areas could be made, however, for specific products like capital goods.
Second, there is talk of major reforms being ushered in. Here we need to be guarded as we have to distinguish between reforms that are to be implemented and statements which are more a memorandum of intent. For example, FDI or land changes are within the realm of parliamentary procedure and should not be interpreted as reforms if mentioned in Budget.
Similarly, while expecting administrative changes like ease of doing business are progressive, they would not really be reforms. These would be outside the Budget. Changes in delivery of services are an administrative measure and not a reform. Removing MAT would be a reform but changing the rate would only be a convenience.
Third, public sector banks are in need of capital and successive budgets have been aiming to provide funds for their growth. For FY15, the indication was that the government was keen to capitalise the better performing banks rather than the weak ones. Therefore, we should not be expecting capital infusion through the budget. Instead, we could expect the government to announce a programme to divest its stake in these banks to 51 percent - a part of the disinvestment programme.
Fourth, we should not expect additional spending on social sectors even though we have been talking a lot of ‘Swachh Bharat’. Cuts in such spending would not be a surprise as the hunt will be on to get the maximum value from every rupee spent through the Budget.
Fifth, there is unlikely to be additional spending from outside the contours on infrastructure with cuts in certain heads like subsidies, social sectors and economic services being diverted for government’s contribution to this sector. Therefore, no specific Keynesian push may be expected here.
Therefore, on the whole we should be abstemious in expectations of the Budget being a ‘make or break’ one or one that can shake the economy. The government is an enabler of growth and the FM will focus on making business easy, but ‘actual outlays’ or ‘deep and wide ranging tax concessions’ would not be at the core of the content. It will be more o swapping savings under certain heads to others – making more from the same, which is commendable.
The author is chief economist, CARE Ratings. Views are personal
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Updated Date: Feb 23, 2015 17:55:02 IST