Finance Minister Arun Jaitley perhaps believes that at times like these, a non-event Budget is an excellent proposition. The most impressive part of Jaitley’s second full Budget has been fiscal prudence, but some of today’s measures such as two new cesses, double taxation of dividend, missing the timeline on corporate tax reduction, and yet another amnesty scheme go against the grain of tax reforms.
These botch-ups go to show lack of cohesion in taxation policy which, looking beyond rates, call for a major procedural, administrative and governance overhaul. In less than six months, three cesses — Krishi Kalyan cess, Swachh Bharat cess, and Infrastructure cess in this Budget — introduced by the government take away Rs 18,000 crore in taxes. In general, surcharges and cess are a bad idea, and need to be eliminated during a clean-up process.
The proposed big ticket indirect tax reform of Goods and Services Tax does not seem to be quite on the government’s agenda. Jaitley made a cursory reference to GST, but given the fact that he has kept the service tax rate at 14 per cent instead of moving and aligning it with the revenue neutral rate of GST. Perversely, by introducing a new 0.5 per cent Krishi Kalyan cess in addition to a previous 0.5 per cent Swachh Bharat cess, he has effectively increased the service tax rate to 15 per cent although the basic rate stands at 14 per cent.
Moving beyond taxation, Jaitley has yet again missed the bus on the low hanging fruits on economic reforms that could have possibly enthused private investors, who were hoping the government would have recovered from Rahul Gandhi’s suit-boot-ki-sarkar jibe.
With government banks sitting on a pile of stressed loans and facing unprecedented competition in the coming days, the Finance Minister has presented no bold plan to either consolidate public sector banks or let them raise more capital by selling government stake. Today’s budgetary provision of a mere Rs 25,000 crore towards recapitalisation does not even serve as a ventilator, let alone prepare the public sector banks for tomorrow’s harsh realities.
True, the government could ill-afford to lose sight of growing rural distress on the back of two poor monsoons, but it has surprisingly not taken note of the languishing private sector investment climate. To start with, Jaitley could have identified problems that have led five critical sectors — mining, infrastructure, iron and steel, aviation and textiles — to bleed and create bad loans for banks. These five sectors alone account for more than 50 per cent of stressed assets of banks. Addressing, for instance, the woes of a sector such as textiles would not only have protected and created more jobs, but also arrested the sharp and continuous slide in exports.
An aggressive stake sale plan is still not catching Jaitley’s attention. In fact, he has budgeted Rs 5,000 crore less through disinvestment for the next financial year compared with the Budget target of Rs 41,000 crore for 2015-16. He has realised only 60 per cent of the target or Rs 25,312 crore this year. Strategic disinvestment or privatisation, though not without its share of controversies, was a major liberalisation move that the previous NDA pursued given Atal Bihari Vajpayee’s politics of conviction.
Jaitley has preferred not to rock the boat, but has not presented a cogent plan either to take the economy to the double-digit growth orbit any time soon. His expenditure plan — limited by the sticky demands of interest payments, subsidy and salaries and pension of government employees — is all about trying to contain rural distress, but hardly goes the extra mile to revive investor sentiment, so critical for growth. He has projected the economy to post a nominal growth of 11 per cent in 2016-17, and even if inflation is assumed to average at around 4 per cent for the year, the real GDP growth rate is just 7 per cent.