IN his fourth Budget, the last but one before the 2019 Lok Sabha elections, Union Finance Minister Arun Jaitley has kept a tight leash on government spending by resisting any temptation to stray away from the path of fiscal prudence. His assumptions on GDP, however, suggest the economy may just about grow at 7 per cent (nominal growth rate of 11.75 per cent), if inflation hovers around 4.5-4.75 per cent due to elevated oil prices.
Jaitley did not make any big announcements but deftly put together small things which, taken cumulatively, present an imaginative economic strategy for what clearly are uncertain times.
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In terms of political signalling as well, he has addressed the chunky sections of the vote bank — the small urban taxpayers who account for the bulk of the base, the SMEs which together employ the most and are the backbone of manufacturing and exports, the farmers, and the rural poor.
His 37-page Budget speech, excluding the annexures, includes reformist moves such as abolition of FIPB and a new non-cash scheme for political funding, stimulus measures including higher rural spends on roads and housing, populist announcements like taxing the rich more and the middle class less; all of this by not spending beyond the means.
He played to the gallery as well by promising to go after offenders who fly away by enacting a law to confiscate their personal property and also limiting cash transactions to Rs 3 lakh.
In fact, this is perhaps the most conservative of all his previous budgets. In absolute terms, the total expenditure for 2017-18 has increased by a meagre 6.57 per cent or Rs 1,32,328 crore over 2016-17. Juxtapose this against the massive Rs 2,23,624 crore or 12.48 per cent increase in 2016-17 over the previous year.
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Clearly, he has kept a very tight fist, and this also explains his fiscal deficit target of 3.2 per cent of GDP for 2017-18, a minor 0.2 per cent deviation from the FRBM-prescribed 3 per cent.
Whether he is conserving for his last full Budget next year ahead of elections will be known only next February. But, yes, he has not made any estimates about tax revenues that may accrue to him following the Income Disclosure Scheme post-demonetisation. The government will also benefit from a windfall, however small it may be, with a sizeable value of demonetised notes not returning to the banking system. These two revenue streams may provide the government some ammunition for fireworks next year.
The Budget gameplan then looks like a gamble on growth, with hopes that rural demand and consumption will give a fillip to the economy.
This explains the higher allocation of Rs 42,000 crore for rural housing and roads, and the cut in corporate tax to 25 per cent for SMEs with turnover less than Rs 50 crore a year. More than 50 per cent of the micro, tiny and small enterprises are in rural India, and account for a bulk of the employment in the sector. These were the sectors worst hit by the radical demonetisation decision.
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It is possible the gamble does not pay off. Even with a 6.5-6.75 per cent growth rate in 2016-17, the gross tax revenues are estimated to grow 17 per cent over the previous year. But for the next year, with expectations that the economy will grow around 7 per cent, Jaitley expects the gross tax revenues to rise by just 12.23 per cent.
He has announced ambitious targets for disinvestment receipts despite a poor show in the current year. In 2016-17, receipts from stake sale have fallen short by Rs 11,000 crore or 20 per cent. This hasn’t stopped him from raising the target by almost 60 per cent to Rs 72,500 crore for 2017-18. The government has made no meaningful progress in bank consolidation, but Jaitley has now proposed to create an integrated “oil major” by merging oil and gas PSUs.
The Budget also fails to recognise that private investment cannot take off unless the government first addresses the issue of bad loans. Banks will not take calls on writing down losses due to NPAs for fear of the four Cs — courts, CVC, CBI and CAG — Jaitley’s Chief Economic Advisor Arvind Subramanian told The Indian Express on Tuesday. Jaitley has just provided a measly Rs 10,000 crore towards bank recapitalisation.