CLIMATE CHANGED   TRANSFORMATIVE Finance Minister Arun Jaitley's first `real' Budget has broken the earlier narrative. Whether this break from tradition will lead to achhe din for some, or to growth that will become genuinely inclusive, is something that will be played out over the year. But the blueprint is of change, and India is set on a journey

Mar 01 2015 : The Economic Times (Mumbai)

CLIMATE CHANGED





TRANSFORMATIVE Finance Minister Arun Jaitley's first `real' Budget has broken the earlier narrative. Whether this break from tradition will lead to achhe din for some, or to growth that will become genuinely inclusive, is something that will be played out over the year. But the blueprint is of change, and India is set on a journey

A Recipe that will Transform the Country

This Budget isn't just about fixing problems.

It also changes the context to find the solutions

With this Budget, finance minister Arun Jaitley has dexterously reinforced the government's commitment to transform the nation by rejuvenating its existing fabric: bringing in ease of conducting business, transparency in policies and stability in the tax regime.

At the same time, the Budget also supports new initiatives that encompass incubation facilities for start-ups, technology-led innovations for f lagship programmes such as `Make in India' and `Innovate in India', along with purposeful programmes like the universal social security system and the anti-inflation monetary policy framework to tackle India's challenges. Underlying this agenda is a strong foundation of fiscal discipline and a clear commitment to lowering the fiscal deficit to 3% in three years.

The emphasis on accelerating infrastructure development and simplifying policies for public-private partnership (PPP) will boost investor confidence. Implementation of the goods and services tax (GST), rationalisation of corporate tax and infusion of greater predictability into the tax regime can catalyse corporate investment and attract foreign business.

The Budget's zeal to curb black money is a big step towards restoring confidence in ethical business in the country. This business in the country. This could also go a long way in enhancing the image of India across the world.

The Budget clearly supports new and innovative ways for the country to accelerate its growth journey. The pro posal to work towards creat ing a universal social secu rity system for all Indians, and support for all aspects of start-up businesses and self-employment activities -particularly in technology-driven areas -are two great examples.

The move to reduce withholding tax on royalty and fees for technical services -from 25% to 10% -is another great enabler of innovation, as it serves to make investments in cutting-edge technology affordable for enterprises.

But what makes this Budget exercise truly laudable is the manner in which it takes into account the need to not just `fix problems' with solutions but to also change the very context in which the country seeks to find the solutions to its challenges.

One way in which the Budget hopes to achieve this is through its focus on education and initiatives to re-skill India's youth and enhance their employability. Support for pension schemes for the masses and health insurance for the underprivileged further demonstrate India's commitment to inclusive growth.

And it is this focus on changing the invisible context that will help bring in the more visible, more tangible positive changes we all hope to see in the year ahead. The world will watch -with great hope and anticipation -the execution of these policies that will help realise the aspirations of this Budget.

Giveaways for the Rich, and Cutbacks for the Poor

Unwarranted claims cannot elide the fact that the vast majority of Indians has been cruelly ignored

After starting with the jibe, "We inherited a sentiment of doomand gloom," the finance minister quickly claimed that "we have turned around the economy dramatically, restoring macro-stability and creating the conditions for sustainable poverty elimination, job creation and durable double-digit economic growth."

Neither the jibe nor the claim was warranted.

Government has acknowledged the data on growth put out by its Central Statistics Office.That means that GDP growth in 2013-14 was 6.9% -far from the picture of doom and gloom painted by the FM. Besides, if GDP growth improved from 6.9% to 7.4% in 2014-15, that is also a far cry from the claim that "we have turned around the economy dramatically".

In fairness, Arun Jaitley should have acknowledged the work done by the previous government and the stable economic situation that his government inherited, and then proceeded to recall the work done by his government since May 2014. There was no justification at all to depart from the fiscal consolidation path announced by the UPA government and adopted by the NDA government. Just two weeks ago, Jaitley reiterated his commitment to fiscal consolidation. In more than one place, the Economic Survey released on February 27 reiterated this commitment. For reasons that are not clear to me, the target of 3% to be achieved in 2016-17 has been set back by a year.

Government has claimed that it has stretched the fiscal deficit from 3.6% to 3.9% in 2015-16 because it needs the additional funds to increase public investment and to provide for the likely burden of the implementation of the Seventh Pay Commission and GST. This claim is suspect. 0.3% of GDP will mean an additional borrowing of `37,500 crore.

I looked into the numbers to see how the sum of `37,500 crore has been put to use. I found that Total Expenditure is projected to increase from `16,81,158 crore in RE 2014-15 to `17,77,477 crore in BE 2015-16. That is to be expected. However, the increase should have been reflected as increase in Plan Expenditure as well. Shockingly, Plan Expenditure is projected to decrease from `4,67,934 crore in RE 2014-15 to `4,65,277 crore in BE 2015-16. It appears to me that the additional borrowing of `37,500 crore will go entirely into increased Non-Plan Expenditure. The Budget speech has shown great concern for the corporates and the income-tax payers (3.5 crore). Given the BJP's leanings, that is understandable. What is worrying is that the vast majority of the people have been cruelly ignored. It is the majority -which does not fall under the category of corporate tax or incometax payers -which looks to the government for succour and relief. It is for this vast majority that social welfare programmes and schemes are devised and funds must be allocated.

What do we find in the Budget documents?
Allocations have been cut for crucial schemes compared to even the Revised Estimates of 2014-15. For example, under Scheduled Castes Sub Plan, the numbers (in crore) are `50,548 (BE 2014-215), `33,638 (RE 2014-15) and `30,850 (BE 2015-16). Similarly, under Tribal Sub Plan, the three corresponding numbers (in crore) are `32,386 (BE), n `20,535 (RE) and `19,979 (BE). There are similar s reductions for drinking water and sanitation, s health and family welfare, the Pradhan Mantri e Gram Sadak Yojana, the Prime Minister's y Employment Generation Programme, l Integrated Child Development Services, multi-sectoral development programmes for r minorities, culture, Project Tiger and so on.y These `cuts' are cruel and unjustified.s It is clear that the Budget -and the govern ment -leans in favour of the corporates. Few ? countries have corporate tax rates lower than s 30%. According to the finance minister, the efifective rate is 23%. He has promised them a 1% r reduction every year beginning 2016-17.d That is a `relief' of `20,000 crore every year (`80,000 crore in the fourth year) over four 8 years! Income-tax payers have got the benefit E of higher deductions. It is the non-income-tax E payer who has got the short end of the stick in r the form of higher excise duty and higher sere vice tax. I think the government's bias is clear.s Now, we must look to a vigorous and spirited ), debate in Parliament.

Good for India Inc, Even Better for Fisc

At last, a commitment to ease `doing business' along with a willingness to undertake fiscal discipline

Arun Jaitley has delivered with a path-breaking reformist effort. This continues the approach taken in his first Budget and maintains an emphasis on long-term planning. We saw the development and investment focus in the railway budget two days ago, and see the same goal orientation in the Union Budget. The overall themes are a commitment to fiscal discipline, measures to facilitate ease of doing business and, thereby, job creation, and a determined approach to simplify taxation.

Despite a tight fiscal space, the path of fiscal consolidation has been continued. While a benign external environment has no doubt played its part in the current fiscal, the government has shown a willingness to balance the fiscal discipline. One hopes that the fiscal consolidation path will be adhered to and met in the extended time frame. There is a concerted effort to improve the ease of doing business and to boost investment through support for corporates, infrastructure, small business and agri business.Many of the taxation proposals are geared towards simplification.

A reduction in the corporate tax rate, suitably balanced with the aim of rationalisation and removal of exemptions, and simplification by replacing wealth tax with a surcharge are commendable. Reducing the complexity of compli ance and a plethora of exemp tions have the potential to avoid disputes and will allow the government and citizens to focus on more productive use of their energy.

The proposed Mudra Bank and unified national agricul tural market can be expected to aid the growth and develop ment of SMEs and agri-based industries. This has been supported by measures to increase availability of finance, including by easing external flows, tightening evasion and an innovative approach to unlock physical savings and deploy them for productive investment.

The focus on development continues with Plan expenditure, higher expenditure on investment and through expanding and easing financing avenues to fund infrastructure projects. The proposed public debt management office will streamline the government's borrowing programme and will be watched.

For individual taxpayers and underprivileged sections of society, there is a vision on welfare and social development that is not delivered through subsidies alone. It aims to maximise impact of subsidies by curbing leakages where the Jan Dhan account platform will play a critical role. There is a focus on expanding the coverage of insurance and pension, and this is supported by the hike in individual exemption limits linked to an encouragement for creating long-term healthcare and social safety nets.

In summary, the focus on presenting a stable and predictable environment is clear. There is also a concerted effort to improve administration, encourage investments and enhance quality of life through a long-term investment and development-led approach.