Both on the expenditure and revenue side, a budget has to be judged by what it does to the maximum number of people. Corporate India responded to the 2015-16 budget with an apprehensive smile. It loves the postponement of GAAR and removal of wealth tax but is unsure of what the new law on black money will imply. It has brought a sadistic smile to the inspectors and the bureaucrats of the CBDT. Markets have a confused frown.
And the middle class has several questions to ask. How will this budget see the reduction of prices of essential commodities and more money in their pockets? Will the increase in service tax not make a hole in its pockets and disincentivise consumption? What would be the inflationary implication of the increase in customs duty on commercial vehicles from 10 percent to 40 percent? The underlying assumption behind reducing corporate tax is that the money thus saved will be reinvested by the corporate. If the tax slabs were rationalized, wouldn’t the same premise work for personal tax? The money thus saved would have boosted consumption.
Will the top 100 richest Indians end up paying higher taxes? The banking sector was looking up to the FM for recapitalization and easing of the massive bad debts that have slowed down lending, slowing the investment cycle down. Where are the labour reforms? Likewise, the manufacturing sector was looking at both short-term kickstart and a long-term push.
The underlying projection of this budget is 8.5 percent growth and 3 percent inflation. Are these projections realistic? Last year, presenting the interim budget, Arun Jaitley had set the Fiscal Deficit at 3.6 percent. Today it has been put at 3.9 percent. India has become an impatient country. The campaign driven politics and governance of Narendra Modi makes Indians start taking the words of politicians seriously. This is a PMO budget and was hence expected to be a delivery budget.
On the eve of the budget itself, the Chief Economic Advisor was very realistic in helping us moderate our expectations.
The proposed Investment and Infrastructure Fund has brought a mild cheer to the industry but the atmosphere for investments does not see a big change. For fiscal deficit to be brought down, the government must trigger the investment cycle. Without any reduction in interest rates, it does not seem possible. Investments have not kicked off in the last eight months (from 38 percent to 32 percent).
Where is the blue print for a double digit growth?
DBT and GST are the only two major reforms being tom-tommed. Were they brought in by this government? The FFC’s recommendation of fiscal federalism increases the state’s revenue but at the same time puts the onus of failure on them.
The budget does nothing spectacular for the health of the economy. Only the stock markets can continue to be sentiment driven. Manufacturing and infrastructure need more than just sentiment and slogan. The government must emerge from its legacy obsession.
The attractive pre-election campaign on minimum government does not get reflected in the budget. The size of the budget remains the same with the balance shifting more towards corporates but without any promise for either a boost in investments or growth. The budget comes across as a transaction between those who pay taxes and those who recover taxes. The rest do not matter and can do with crumbs.
Experts have complimented the government for its pro-growth vision. The difference between a long-term vision and an actual deliverable is the difference between philosophy and religious faith. Everyone likes the concepts of Nirvana and spending life after death in the heaven above, but everyone wants a promotion, a house and a car from his or her God here and now.
Pawan Khera is associated with the Congress and the views expressed are his own
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Updated Date: Mar 01, 2015 11:19:45 IST