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India always makes a grand spectacle of a Budget document, unlike anywhere else in the world. This year’s was even more noteworthy in this respect. The expectations were higher than usual, since lately noises that the economic upturn promised in the 2014 election campaign was not yet much in evidence nine months after a historic mandate given to the ruling dispensation. The first budget of Finance Minister Arun Jaitley had failed to create much excitement (I had called it “Old wine in old bottles”).
The clues to what to expect were provided in the Economic Survey 2015, presented to Parliament a day before the Budget. It was sharply focussed on diagnostics of the macroeconomy and what needs to be done, was transparent and clearly written. It cautioned us that the improved growth rate following the change in the datum and the methodology last month must only be seen as indicative of a recovering economy. The stalled projects were identified as major bottlenecks.
According to the Survey, the fall in crude prices and the listlessness of international economic activity offered India an advantage, placing it in a ‘sweet spot’ to accelerate its growth. A growth rate of over 8 per cent could be achieved through greater emphasis on manufacturing, for Indian as well as export markets. The route to it was via both Skill India and Make in India initiatives.
Jaitley’s Rs 17.8 lakh crore Budget reflected all this thinking. The fiscal deficit in 2014-15 would be contained at the targetted level of 4.1 per cent of the GDP. He made a case for public investment playing a key role in giving the economy a kick start which in turn will boost private investment. He recommended a somewhat slower progress to the target of 3 per cent in three years, with 3.9 per cent as the objective for 2015-16.
The FM’s vision of a “just and compassionate” India was inspiring. India will observe the 75th anniversary of Independence in 2022. By then, it should banish absolute poverty, provide housing for all, and have all villages connected and electrified. Later in the speech, Jaitley added a universal social security net to the vision: bank accounts followed by accident, life and medical insurance for those not covered, a universal pension plan and greater reliance on cashless transactions. He lauded the direct benefit transfer schemes and urged the well-off to voluntarily not avail of the subsidies on offer.
He declared that India cannot get where it wants to by following an incremental route. It needs big bang reforms, echoing the Survey. That included several specific initiatives: The stalled projects will be revived. Five new ultra mega power projects each of 5,000 mw capacity will be auctioned along with all clearances in place to signal the stress on speedy completion. Besides additional funds for roads and railways from the Budget, a national infrastructure investment fund would help financing institutions to leverage their resources.
The real meat of the Budget lay in its taxation proposals. The finance minister said that India had a relatively high rate of 30 per cent as corporate tax as compared to its neighbours and competitors. But it also offered a variety of exemptions making the effective rate 23 per cent. These provided unnecessary latitude and discretion, leading to wasteful tax disputes.
He did not propose a change immediately, but said that the rate will be reduced to 25 per cent over the next four years, along with a rationalisation of the structure removing most exemptions. With equal emphasis, he said that the long-awaited goods and services tax will be rolled out in April 2016. In anticipation, the service tax was proposed to be hiked to 14 per cent from the present 12.
Eliminating loopholes
The Budget proposed to treat all foreign investments, portfolio or direct, in the same manner and eliminate loopholes. Reducing paper work and digitalisation were recommended as means of de-bottlenecking permissions and clearances which. The hope clearly was that all these announcements would improve the climate of doing business in India.
The Budget refreshingly did not contain a laundry-list of changes in customs duty or excise levied on specific goods as has been the case for far too long, just as the Railway Budget two days earlier did not propose new lines or trains. The Budgets now need not be seen as pandering to special interests.
The criticism as heard immediately after the speech was on expected lines: pro-rich, pro-business, nothing for the poor, and mostly followed the political affiliation of those offering it. Not much of it was justified. For example, the lowering of corporate tax which was singled out, was in effect not a giveaway to business, as it came along with removal of exemptions. Stock markets grasped this soon enough, for the Sensex which had jumped by 1 per cent after the announcement, soon gravitated back to no change/small drop levels.
The Budget is not quite the break-out plan that many had hoped for. It contains a road map, and mile posts. It also lists possible roadblocks and potholes. But it does not quite guide the driver and vehicle to negotiate them successfully. For example, many of the proposals in the Budget need enabling legislation.
The government already faces a hostile opposition, especially in the Rajya Sabha, even for its current enactment agenda. One cannot say at this stage how easy the passage of the new measures would be. The administration also needs to change its mindset to be a facilitator rather than a controller, which is easier said than done.
For now, the finance minister and the government have met the immediate challenge by presenting a work in progress, with great promise. The wine this time is new and also in a new bottle, which, though not full, is less than half empty.
(The writer is former Professor, IIM-Ahmedabad)
The impetus given to R&D, incubation and entrepreneurship in this Budget is very heartening. So is the support for innovation through the Atal Innovation Mission. If administered well, these steps can act as a force multiplier for both “Make in India” and for employment generation. The strong commitment for Housing for All and for the increased use of renewable energy are also welcome.”
Prof Bhaskar
Ramamurthi, Director – IIT Madras
We were definitely expecting some significant tweaks on the inverted duty structure but it has been limited to only 22 items, so let the details emerge to see if these will benefit medical device manufacturing. Also reduction of special additional duty is not going to help domestic manufacturing become more competitive. We have seen that as a problem in Medical Devices and instead of reversing this, this has actually been applied to most consumer goods! How will government realise the PM's Make in India vision?”
Rajiv Nath, Forum Co-ordinator
Association of Indian Medical Device Industry
The Budget has provided for excise duty differential of 11% on domestically manufactured mobile phones over imported phones. The step up in the differential from 5% in the pre-budget dispensation to the current 11% is designed to create the necessary pull for investments from India and abroad into the industry and will realise the “Make in India” programme. The government will have to fine tune the differential keeping in mind that smuggling of finished mobile phones into the country from China has always been a big problem.”
Pankaj Mahindroo
National President of Indian Cellular Association
Key Features of Budget 2015-2016
Monetary Policy Framework Agreement with RBI, to keep inflation below 6%.
GDP growth in 2015-16, projected to be between 8 to 8.5%.
Vision for “Team India” led by PM
Housing for all - 2 crore houses in Urban areas and 4 crore houses in Rural areas.
Basic facility of 24x7 power, clean drinking water, a toilet and road connectivity.
At least one member has access to means for livelihood.
Substantial reduction in poverty.
Electrification of the remaining 20,000 villages including off-grid Solar Power- by 2020.
Connecting each of the 1,78,000 un-connected habitation.
Providing medical services in each village and city.
Ensure a Senior Secondary School within 5 km reach of every child, while improving quality of education and learning outcomes.
To strengthen rural economy - increase irrigated area, improve the efficiency of existing irrigation systems, and ensure value addition and reasonable price for farm produce.
Ensure communication connectivity to all villages.To make India, the manufacturing hub of the World.