March 2, 2015 12:17:15 am
Several features of the Narendra Modi government’s first full-year budget address the need to boost investor sentiment. These include a four-year roadmap to lower the basic corporate tax rate from 30 per cent to an internationally competitive level of 25 per cent sans exemptions, deferring the implementation of the General Anti-Avoidance Rules by two years while applying them only prospectively, the commitment to a nationwide goods and services tax system from April 2016, and the enactment of a comprehensive bankruptcy code (hopefully, borrowing from the Chapter 11 provisions of the US law enabling speedy reorganisation of failed businesses and securing of creditor interests). Equally sensible are the plans to de-risk private investments in infrastructure, including through auctioning mega projects in “plug-and-play” mode after all the clearances and linkages are in place. Taken together with other proposals allowing salaried persons the choice between making mandatory contributions to the Employees Provident Fund and the potentially higher return-generating New Pension System, having the same regulator (Sebi) for the securities and commodity derivatives markets, governance reforms and establishment of a separate holding investment company for public-sector banks, and corporatisation of state-owned ports, it adds up to a fairly reformist and forward-looking budget.
Where the budget falls short is in coming out with any near-term measures to revive growth and investment. Finance Minister Arun Jaitley has defended extending the timeline for meeting the 3 per cent of the GDP fiscal deficit target — to 2017-18 instead of 2016-17 — by citing the need to boost public investment, given the private sector’s continued reluctance to invest. The fact, however, is that the Centre’s total capital expenditure in 2015-16 is slated to rise by just Rs 14,649 crore, or 6.5 per cent, over the budget estimates for the current fiscal. As a result, even the revenue deficit, which should have fallen to 2.2 per cent of the GDP in the normal course, is budgeted now at 2.8 per cent. The main reason is subsidies on food and fertiliser — at Rs 1,97,388 crore, they are actually pegged higher than in 2014-15. While Jaitley’s budget speech has talked of targeting welfare schemes to the truly needy using the Jan Dhan-Aadhaar-Mobile (JAM) platform, there is no attempt at rationalisation, leave alone a move to direct benefit transfers, in respect of the two big-ticket subsidy items. In the process, the budget has deviated from the original fiscal consolidation roadmap, apart from forcing resource-raising through avenues like the untimely hike in the service tax rate to 14 per cent at a time when consumer sentiment is already weak.
This budget’s test will come in about six months from now. If investments fail to pick up, there would be no alternative, then, to taking the tough decisions. Jaitley has said the budget is just “one day in a year” and “we are a round-the-clock, round-the-year government”. He will be held to those words.
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