Now that the Supreme Court and the Election Commission have declined to interfere with the presentation of the Union budget on 1 February, the countdown has begun for what will be a unique budget in Indian history. Consider:
#1: It will be the first budget with an indirect tax ambit of about three months. From 1 July, we will have the goods and services tax (GST), which will replace the regular excise and services taxes. We will also know the rates well in advance, for the rates will be decided by the GST Council, and not by the finance ministry alone. Half of budget secrecy will be over with this budget, with the secrecy remaining largely for direct taxes.
#2: The focus of the budget will be on direct taxes and the railway allocations, since post-demonetisation the expectation is that the government will have to provide a fiscal stimulus in the form of tax cuts, and a fillip to public investment, which will happen in railways and infrastructure.
#3: This will be a rare budget that will conform to no five-year plan, with the 12th five-year plan formally ending on 31 March 2017. With the abolition of the Planning Commission, state-wise resource allocations are no longer done by the Commission or its substitute, Niti Aayog. The latter is busy working on long-term growth visions and pushing digital currency, not to speak of playing a support role to other ministries. This will be the first budget to formally do away with the plan/non-plan dichotomy, and instead focus on revenue and capital expenditures.
#4: The fiscal roadmap, drawn last in 2012, will again be redrawn following the report of the NK Singh committee. The earlier plan to reduce the deficit to 3 percent of GDP in 2017-18 is now going down the drain. Not without reason. With growth flagging, and with demonetisation further tripping short-term growth, the government wants the fiscal cap eased to provide an economic stimulus.
But the more important things to look for are what the budget will contain. My crystal ball suggests five or six major focus areas.
#5: There will be a fiscal stimulus. This means both corporate and personal taxes will be cut, the former substantially, and the latter in a smaller dose. MAT (the minimum alternate tax) may be cut as some tax exemptions for companies will be withdrawn.
#6: There will be a three-month stimulus for sectors that have been affected by the demonetisation slowdown. This could include two-wheelers and tractors, while there could be fiscal concessions for scrapping old vehicles. Cars may be left out, for they will benefit from GST anyway.
#7: A large dose of infrastructure spending will be announced, especially in roads and railways.
#8: Some form of higher taxes on capital markets seems likely in the context of the PM’s statement to the effect. Dividends could be taxed at the top rate for payments above a certain limit. Some long-term capital gains tax for shares cannot also be ruled out.
#9: A higher disinvestment target, including strategic divestments as suggested by Niti Aayog, will be announced. But real privatisation may not be possible without passing a law that needs Rajya Sabha approval. The question is whether the Modi government will get a better foothold in the Rajya Sabha after the next round of UP elections, and the resultant higher number of RS seats in the next round of elections.
#10: Railway passenger fares may be raised, since these fares are heavily subsidised right now. Freight is unlikely to be touched, except for marginal rationalisations.
Above all, the budget may unveil details on the net result of demonetisation, and also the expected additional income from the ferreting out of black money. The Pradhan Mantri Garib Kalyan Yojana’s pickings may be indicated, and the sops announced for the poor by the PM on 31 December, a day after the deadline for deposit of demonetised notes was over.
Updated Date: Jan 25, 2017 15:47 PM