Budget fails to meet expectations

Coming after a disruptive measure to demonetise high value currency notes, leading to a painful nearly three-month period of decline in economic growth inflicting unexpected difficulties, the Union Budget was expected to bring significant relief to all, including industries, enterprises and individuals. But the 2017-18 Budget of the Narendra Modi government does not really provide any great relief. However, Finance Minister Arun Jaitley, to some extent, has tried to soothe the painful experience of the note ban that people went through from November 8, 2016 when the government announced it. The minister has provided 24% higher resources of Rs 1.87 lakh crore for rural India, which suffered the most because of the cash ban. Small and medium enterprises, yet another victim of demonetisation, have been given a positive discrimination of a 5% cut in tax, though wider expectation of 25% corporate tax from 30% was belied.

There was, however, a great relief that exemption from the long-term capital gains tax (LTCGT) on shares would continue. In the midst of building a popular support for the currency ban, Modi had indicated the possibility of LTCGT on equity, unnerving the markets. With the general Budget subsuming the Railway Budget, the effort is to integrate different modes of transport, including roads and shipping into an efficient infrastructure, for which a combined sum of Rs 2.41 lakh crore has been provided for. Even as there were expectations of a ‘game-changing’ Budget, advanced with the objective of improving quality of government expenditure, some analysts had the lurking fear whether a reckless streak could creep into those holding keys to the exchequer. With a small deviation but sticking to 3.20% fiscal deficit, the finance minister has maintained financial discipline which should go well with the global rating agencies, always keeping an eagle’s eye on government finances.

There is not much for the middle class in the Budget. Jaitley has disappointed the salaried and pension class tax payers. The lower middle class will get some relief as they pay less income tax, virtually nothing up to Rs 3 lakh income. As regards political funding, proposals make them transparent and limiting cash donations are welcome efforts towards curbing black money. The net giveaways in direct taxes amount to Rs 20,000 crore while there are no implications for indirect taxes. Given that a bigger uncertainty over the impact of the impending Goods and Services Tax both at the Centre and state levels looms large, a key question remains whether the assumption of over 11% nominal GDP growth for over 15% tax expansion would come true. If these assumptions, including an ambitious disinvestment target of Rs 72,500 crore go wrong, the finance minister could have problems going forward.

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