Has this Budget met the expectations from the Narendra Modi government that were dashed by Finance Minister Arun Jaitley’s earlier one? The answer must be that it has, though not to the extent that it could have.

The Railway Budget set the tone by giving a five year vision and programme, setting the customer at the centre and not vote catching announcements like new trains, lower fares, etc. It offered a huge boost to the economy with a Rs 8.5 lakh investment over five years, in double-tracking the network, investments for maximising safety, cleanliness and hygiene, and other amenities like digitisation allowing advance reservations, etc. Jaitley has not been as much of a visionary but his actions do paint a vision.

Rating agency Standard and Poor’s said they were awaiting a clear sign that the fiscal deficit would be brought down. The finance minister has kept to the target of 4.1 per cent but by revising the GDP growth figures upwards through changes in base year. Despite this, he has extended the achievement of the 3 per cent target (laid down by the Fiscal Responsibility Act) by one more year. He has thus signalled that fiscal balance is less important than stimulating growth. Since foreign investment is coming in at record levels he is probably right in ignoring the S & P warning. Addition to tax revenues is only about 1 per cent of the total.  

Jaitley has taken the 14th Finance Commission recommendation to increase to 42 per cent the Central transfers to states. However, it appears that the transfers of many Centrally sponsored schemes to the states, the reduction in Central plan assistance and revenue expenditures will leave the states with no real extra revenues. States must also delegate more powers to panchayats and municipalities.  

Considerable resources are devoted to agriculture. The intention to reform agricultural marketing and to improve farmers’ realisations on crops is good but could have been finalised with the state governments earlier, and not postponed as he has done. Modi’s slogan of “Make in India” and raising manufacturing in GDP from 17 to 30 per cent or more in many Asian countries is satisfied by the provisions for defence, roads, railways, ports, urban and rural housing, etc. He has not confined investments to the public sector and has provided sovereign guarantees in part to infrastructure investments in public-private partnerships. 

Skill development programmes, digitisation to reduce inspector raj and ease the doing of business, stimulus to innovation, research and local start-ups will add to private investments. So will measures to add to foreign investment.

Tax-free bonds, long term infrastructure development bonds and a special fund, partial sovereign guarantee to public private partnerships in infrastructure are other measures. He could have tapped on provident, gratuity and insurance funds to finance private-public partnerships. Plug and play projects (presumably assuring all clearances in advance) like the five new ultra mega power projects, with similar ones in other infrastructure areas will boost investment and encourage private investment. 

Provisions for disinvestment are at record highs. However, the need for privatisation of state-owned enterprises and adding to GDP through improved efficiencies is not mentioned. Disinvestment merely adds to revenues in one year. Privatisation could add to the GDP.

Many issues are unaddressed awaiting committees’ recommendations: expenditure reforms, tax administration reform, amendments to laws so that multiple prior approvals for new investments are avoided, reducing the amount of reporting required by various levels of governments from all industries, amendment in consultation with states to the agricultural produce marketing act to improve farmers’ realisations on crops, and bankruptcy laws as in USA.

Corporate tax rates

The target of reducing marginal corporate tax rates over three years while reducing exemptions and incentives, abolishing wealth tax and introducing a surcharge on very high incomes, will reduce disputes and litigation and add to revenues. The MAT rates have not been reduced, a key demand from the industry. Tax administration is also to improve further with greater computerisation. The GARR is postponed by two years, not abandoned while the GST is to be effective from April 1, 2016, a welcome for ease of business. Retrospective taxation will not be used.

Black money (within and outside India) are about much more stringent penalties. There is nothing to prevent its generation, for example, public funding for elections, introducing severe penalties on candidates who overspend, encouraging state governments to reduce property taxes, eliminating differential capital gains taxes given to investments from some countries, anonymous overseas investments, etc.  Proposals to hold gold by individuals in interest bearing bonds must be watched for effectiveness in gold mad India. 

Amendments to the FEMA and to combined treatment of foreign portfolios and direct investments will certainly promote foreign investment. While growth is the focus, social welfare expenditures get attention.

Rural employment guarantee scheme and a slew of schemes to help higher education of poor youth, support to senior citizens, a universal pension scheme, health and life insurances at low rates, support to women, higher education in schools within 5 km from any village, setting up of more institutions for advanced work in medicine technology and management in some more states, social safety net, etc illustrate this. Quality improvements in social services and dealing with severe shortages of faculty in all fields are neglected. The budgets for health and education are lowered. 

This Budget will give the economy a big boost. There is still no total change of direction from a statist economy.