There were expectations that the Budget will be a populist one; however, the government seems to have been wise in sticking to basics of development agenda, fiscal prudence and providing macroeconomic stability
The Budget for the financial year 2017-18 was presented in the backdrop of looming uncertainty in the global economy, and a huge disruptive shock to the domestic economy after demonetisation. The finance minister was confronted with the daunting challenge of reinforcing his development agenda, aiding a recovery in new investments, growth and employment, without compromising macroeconomic stability. Besides this, such is the electoral scenario in India – assembly elections in five states started on 4 February, and Gujarat goes to the polls in the latter half of the year – that the Budget was also expected to take care of the rural economy and middle classes hit by demonetisation.In addition, the Budget was expected to introduce measures to improve ease of doing business, address financing and contractual issues for stuck projects resulting in increasing non-performing assets (NPAs) for the banks, and simplify the tax regime for infrastructure projects and the entities involved.
Given the challenges as stated above, and to be fair to the government, the Budget does well to carry forward the vision of the government to assure that the fruits of development reach all segments of society. It is a budget that focuses on growth and development, while keeping the focus on strengthening the governance fabric of the nation.
The government has made the right move by continuing with its focus on farmers, rural population, youth, and the poor and underprivileged. These are the segments which will drive consumption going ahead. While assuring income security for farmers, the Budget has given a strong push to some of the key schemes such as Fasal Bima Yojana, Long Term Irrigation Fund and Soil Health Card Scheme. This is a step towards strengthening the foundation of the agricultural sector. Also, the announcement made towards easing flow of credit to small and marginal farmers by linking Primary Agriculture Credit Societies with the Core Banking System of District Central Cooperative Banks is commendable.
The allocation under MGNREGA has been increased to Rs 48,000 crore, the highest ever; this will help improve income levels in the rural areas of the country. The planned approach of the government to link MGNREGA with asset creation is laudable.
The Budget continues to place emphasis on infrastructure development with an increased outlay of Rs 3,961 billion for infrastructure in the budgeted expenditure for FY 17-18. With the merging of Railways Budget with the Union Budget, the market was looking forward for key announcements to address long standing needs of the sector. The establishment of a Rail Safety Fund and the focus on railway cleanliness, and redevelopment of stations are welcome announcements. A good allocation of capex for transportation, rural and other infrastructure, including for water-efficient micro irrigation are also encouraging steps, as also the development of select airports in tier II cities, supplementing the regional connectivity initiatives. From the budget speech it was clear that the infrastructure sector has been a key priority area and the government seeks to put in place a multimodal logistics and transport infrastructure which will bring in greater competitiveness and efficiency. In fact, for the transportation sector as a whole (rail, roads, shipping) the Budget has provided an allocation of Rs 2,41,387 crore in 2017-18. Such huge investment will spur economic activity and create more jobs. This will also give an impetus to demand.
Another big expectation from the Budget was the thrust on digitisation, and the measures announced reflect the determination of the government to move towards digitisation and bringin greater transparency in economic transactions.A number of steps have been announced to encourage people to use digital or electronic modes of payment. A merchant version of Aadhar Enabled Payment System has been launched, which will not require the other payment modes like debit cards, mobile wallets or mobile phones. This will particularly address the needs of those who still do not have payment cards.Two new schemes -Referral Bonus Scheme for individuals and a Cashback Scheme for merchants – have also been launched to promote the use of Bharat Interface for Money(BHIM). The government has set up a mission with a target of 2,500 crore digital transactions through UPI, USSD, Aadhar Pay, IMPS and debit cards in 2017-18. To meet this target, having an enabling digital infrastructure in place will be key. The government aims to introduce 20 lakh Aadhar-based PoS machines through banks by September 2017. Further, 1.5lakh gram panchayats are proposed to be connected with high speed broadband Internet connection.
Excise/CV duty and SAD on miniaturisedPoS card readers for m-POS, micro ATM standards, Finger Print Readers/Scanners, Iris Scanners as well as on the parts and components used for manufacturing these devices have been waived off, which is a welcome move. This would encourage manufacturing of these machines in India, thereby increasing the affordability and availability. Also, a Payments Regulatory Board in the RBI has been created to help resolve conflicts that could arise as the use of online transactions increases.
India’s youth is its biggest asset and they need to be educated and trained so that they can achieve their aspirations. Despite having the largest higher education system in terms of number of institutions, the quality of these institutions remains questionable; there remain huge gaps in the system. There is a need to have a strong education and skill development framework in the country, with the focus on firming up the pillars of viability, quality and capacity. The Budget lays emphasis on these three pillars. The proposal to assess annual learning outcomes in schools is indeed noteworthy. Also the announcement to establish 100 India International Skills Centres and extending Pradhan Mantri Kaushal Kendras to more than 600 districts across the country will help bridge gaps in capacity. The announcement to launch Skill Acquisition and Knowledge Awareness for Livelihood Promotion programme (SANKALP) which will provide market relevant training to 3.5 crore youth is reassuring in terms of the quality of available workforce.
Due focus was also laid on the financial sector, with the central objective of putting in place stable and stronger institutions. While some of the announcements furthered the roadmap put in place by the government earlier, one of the biggest elements of surprise was the abolition of Foreign Investment Promotion Board (FIPB). Already 90% of total FDI inflows in the country come via the automatic route, and this move is evidence of the administration’s resolve to have maximum governance and minimum government.
The real estate sector has also been offered relaxations, which should boost supply of affordable housing going forward. The boost to housing and construction will stimulate economic activities in several other areas, including steel and cement. Moreover, the proposal to grant infrastructure status to affordable housing, which was a long standing demand of the industry, is a welcome step and will enable higher investment in this segment besides furthering the social agenda.
Electoral funding was a subject of much debate and even the Election Commission of India had made a few suggestions to the government. That India needed to enhance transparency in electoral funding was reasoned well by many. The government seems to have taken note of this and made a humble beginning by making specific budget proposals in this regard. Cash donations to political parties from one source have been capped at Rs 2,000 from the earlier Rs 20,000, and the proposal to amend the RBI Act to enable issuance of electoral bondsis significant.
A smooth passage for GST over the coming months will hopefully streamline some unwarranted indirect taxes, cesses, surcharges and so on in fairly distributing the weight of taxes between direct and indirect tax structures. This is based on the assumption that the government will continue to gradually increase its direct tax base by reducing tax rates in various income slabs over the coming years. A beginning was made this year – the tax rate for income group up to Rs 5 lakh per annum has been lowered, which will put more disposable income in the hands of individuals. This move will be complimented with a reduction in overall indirect tax rate structure,so more people are encouraged to pay direct taxes where the incidence of tax remains progressively sloped. This process will surely take time, but ensure a more progressive tax structure and administration base.
Whether or not the government will be able to deliver on promises made in the Budget depends on how the overall budgetary numbers play out in the next year.