No one can deny India’s headwinds. Global trade has contracted. China’s GDP growth was down to 6.9 per cent in 2015 and is expected to fall to 6.4 per cent in 2016. The euro area barely achieved 1.5 per cent growth in 2015; it won’t get any better in 2016. Russia is in recession and Brazil is in deep funk. Emerging market stocks, reflected by the MSCI index, have tanked by 31 per cent between end of April 2015 and February 29, 2016.
We are not facing global storms. India’s agriculture has had two consecutive drought years, characterised by negative growth, increasing rural indebtedness and farmers’ suicides in acutely parched regions. The rural sector suffers from reduced income and lack of demand. For four years till 2015-16, there has been a steady deterioration, often paralysis, of core infrastructure activities in roads, highways, rail, collieries, mines, ports and power.
Bereft of sufficient demand, manufacturing growth has not picked up. With over Rs 3.5 lakh crore of non-performing loans, public-sector banks (PSBs) have virtually shut their credit windows. Employment is at a standstill when 1.5 million people are joining job queues every month. And much of the GDP growth of 7.6 per cent in 2015-16 — if it is that — is being generated by services, without support from manufacturing or agriculture.
This is the situation in which Finance Minister Arun Jaitley presented his third budget. Given the context, where does he deserve praise?
For agriculture and farmers’ welfare, the budget has allocated Rs 35,894 crore, including interest subvention on farm loans, accelerated irrigation, insurance against crop failures and a substantial outlay of Rs 19,000 crore for building village roads under the Pradhan Mantri Gram Sadak Yojana (PMGSY), a programme with significant rural employment potential that has languished for some time. It allocated another Rs 87,765 crore for rural India under various heads, including Rs 38,500 crore under the MGNREGA. For infrastructure, Jaitley has directly budgeted Rs 55,000 crore for the building of roads and highways, excluding what has been earmarked for the PMGSY; and an additional Rs 8,500 crore for rural electrification under two different schemes. I could continue. But the gist of it is that the budget has allocated serious money for languishing sectors such as agriculture, rural India, infrastructure and electrification of villages. These constitute a “Budget for Bharat”.
Given such expenditures, and the need to do more over the next few years, it must have been tempting for Jaitley to make a case for widening the fiscal deficit in the name of spurring growth. He hasn’t. Thanks to enormous gains from low crude oil prices — both due to higher excise collections and lower petroleum and fertiliser subsidies — the budget not only maintains the deficit for 2016-17 at 3.5 per cent of the GDP, but also compresses it by Rs 1,186 crore vis-à-vis the revised deficit of Rs 5,33,904 crore for 2015-16. That, of course, raises concerns about future revenues, what with the Seventh Pay Commission recommendations and one rank one pension on the horizon.
The Centre’s net tax revenue is to increase by 11 per cent to Rs 10,54,101 crore — which I can accept. What I find a bit far fetched is the 18 per cent growth in revenue from personal income tax. A mild increase in levies on the rich isn’t enough unless it’s accompanied by a significant widening of the tax net and inducing a large number of tax evaders to be honest. I hope it happens.
More beguiling are non-tax revenues. These are expected to increase by almost 25 per cent to Rs 3,22,921 crore, over 30 per cent of it coming from “Other Communication Services” — or spectrum sales — and another 38 per cent as dividends from government enterprises and PSBs riddled with non-performing loans. Big-ticket items, with big question marks.
Then, the item that flatters to deceive: Disinvestment and strategic sale of stakes in public-sector units. Last year, the budget estimated Rs 69,500 crore. Versus this, the revised estimate for 2015-16 is Rs 25,312 crore, or a staggering shortfall of 64 per cent. Yet, Jaitley has placed his bet on a high number for 2016-17 — Rs 56,500 crore. I pray that rechristening the Department of Disinvestment as the Department of Investment and Public Asset Management (DIPAM) suffices to improve its abject past performance. Jaitley will need this money more than ever before.
What I dislike is the stance on retrospective tax amendments. The message is that there won’t be any more, but if you are in the net, like Vodafone and others, then, “Be good, get rid of the cases that you have instituted and settle. If you do, I won’t levy any penalties.” This is state power to enforce a bad law. Not good governance.
Given the fiscal constraints, the budget tries to do all it can to raise resources. I have no qualms about marginally increasing the tax burden on the richer assesses. However, Jaitley may have committed political hara-kiri by proposing a uniform tax structure for all employees saving under a national pension scheme. Good in principle, it takes away the benefits enjoyed by government pension funds, which enjoyed an EEE status: Tax exempt while contributing, exempt while accumulating income, and exempt when exiting or taking lump-sum benefits out of the fund. He will need to clarify some more, accommodate or roll-back.
It’s a good budget in terms of most allocations and the fiscal determination to stick to a target. But it’s a damn tough one to implement. Jaitley had better keep a hawk-eye on all key items. Because, unless he has a few tricks up his sleeve, a mishap or two could derail it.