Walking the tight rope

UNION BUDGET 2017-18

The Union Budget for 2017-18 presented by Union Finance Minister Arun Jaitley made its mark symbolically as also in substance. The symbolic and substantive aspects of the Budget welded appropriately as the former aspect had its effect onto the latter attribute, thereby lending a substance of coherence.

Symbolically, the Budget saw the balance sheet for Railways being incorporated with the other budgetary minutes of the country – a discontinuance of a pr­actice in vogue since 1924. The substance lies in aiming for facilitating fruitful cooperation with other sectors and efficacy of the railways, yet strictly adhering to the separate identity of the mega organisation. Also, classification of plan and non-plan expenditures has been discontinued. The purpose is for an optimal allocation and use of resources.

Jaitley has walked the tight rope with confidence and resolve. The Budget looked into the necessities for almost all relevant aspects of the economy. Barring the intransigent fringe, hardly anybody would deem the Budget as lopsided or impractical. Additionally, the government seems to be endeavouring to take the economic normal of the country to new, stable high.

Agriculture and rural sector, infrastructure, investment, welfare programmes, financial sector, fiscal policy, taxation, and methods for applying the corrective to financial unscrupulousness have all received explicit attention. They have been dealt with separately and yet, figuratively speaking, a thread to bring all in fruitful compatibility, seem to be woven accurately.

The Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) is the flagship public programme for rural and agricultural sector uplift. For the coming financial year, the government has allocated it Rs 48,000 crore: the largest government allocation for any public initiative, till date.

The finance minister averred that compared to the past year, participation in MGNREGA programme has increased by 8% to 10%. While that is undoubtedly a positive indication, it is symptomatic of the considerable length the country still has to traverse to pull out its entire population from economic hardship.

Associated rural and welfare initiatives have also been announced generously. Rural roads, rural electricity, and schemes for the uplift of rural women are being looked into in earnest.

Additionally, the government announced other noble aims: 100% village electrification by May, 2018, pull out one crore people from the yoke of poverty by 2019, expand organised crop loan scheme, set up long-term irrigation fund, improve farm productivity and assist in the flow of rural credit in the neglected areas — particularly in the North-East and in Jammu & Kashmir.

Comprehensive development appears to have been foremost in the mind of the government authorities. In education, health, and housing for the poor, notable steps have been initiated. A refreshing statement by Jaitley has been regarding education: he has called for academic autonomy. A particular bane has been the conspicuous lack of appropriate academic autonomy paradigms.

Moreover, students need to be provided scope, encouragement and training for creative thinking on any particular field of study. Meritorious teachers too need to be given the scope for contributing towards that purpose, yet be held accountable as regards their academic capabilities and teaching skills. That, as and when it spreads, would add fruitfully to human resource development.

The financial sector, fiscal dynamics and income tax have much more to be encouraged with than be discouraged. Given the relative vibrancy of the financial sector in the country, the government has decided to abolish the Financial Investment Promotion Board (FIPB). Further financial liberalisation steps are being considered. The decision to abolish the FIPB could be hailed as a necessary step towards reducing needless paperwork ordeal and regulations, which has the potential to give scope for greasing of palms.

But, the Budget did not announce what the regulatory framework would be. Hopefully, the replacing system would accord high priority to efficacy and transparency. Investors, both within the country and from abroad could be inspired. For companies with turnout of up to Rs 50 crore would be taxed 5% less than before. It brings into the fold a substantial proportion of companies while encouraging more investments in medium and small scale industries.

Discourse on taxes

For decades, the discourse on taxes was that they were inordinately high, thereby encouraging tax evasion and its attendant unsavoury aspects. Governments need tax revenue. But, they need to be of an order whereby the tax structure is worthwhile. The tax base could be expanded easily while tax evasion could be cracked down upon with relative ease.

The Modi government has framed the taxes in a way that most salaried people of the organised sector would not have much to grumble, others would be encouraged into the organised sector, and those not complying could be punished without allowing for scope for disgruntlement as regards the unfairness of the tax system.

Earnings till Rs 3 lakh per year would not be taxed. Between Rs 3 lakh and Rs 5 lakh, taxes have been proposed to be reduced from 10% to 5%. Incomes between Rs 50 lakh and Rs 1 crore would be subject to 10% surcharge. Earnings above this would be inevitably subjected to more, but the pragmatic, utility increasing verve is palpable.

Humongous sums of money have been apportioned towards net infrastructure and total capital outlays: Rs 3,96,135 crore for the former and Rs 1,31,000 crore for the latter. The possibility of putting all articulated costs into effect is more realistic because for the about-to-conclude financial year, 2016-17 the government’s net tax income, from direct and indirect taxes, adds up to nearly Rs 8.76 lakh crore.

Furthermore, the desire and effort to keep fiscal deficits to 3.2% of GDP for financial year 2017-18 and to 3% of GDP the following year, sounds more credible than not, given the prevailing fiscal position of the country. Questions and doubts could arise. But, given the emphasis on efficacy, transparency, good governance, pragmatism in the budget, the possibilities for its feasibility is more than less.

(The writer is an analyst on international finance)