Ending days and months of speculation, Budget Day has come and gone. Despite the cheerful optimism of the Finance Minister’s speech, share prices have ended a tad lower, which showed that the market does not share the Government’s optimism. Both the ruling party and opposition have gone on overdrive; one is applauding the Budget as God’s gift to mankind and the other is decrying the Budget as a recipe for disaster.
Before venturing to comment on the Budget, one has to remember that contrary to what the Government would have us believe, the Budget is not a panacea for all the ills of our society. Even in the economic sphere, the manoeuvrability of the Government is very limited. Thanks to the Fiscal Responsibility and Budget Management Act, 2003 (FRBM), substantial deficit financing is no longer an option. With the top-line under stress, one sop can be given only at the cost of another. The Finance Minister has tried to portray the current budget as a Budget showering largesse on the rural sector. This is not true to the extent the Finance Minister would have us believe.
The total number of schemes supported by the Budget is now 83 as against 73 last year. Allocation on Central Schemes has increased from Rs 9.45 lakh crore to Rs 10.15 lakh crore, an increase of 7.45 per cent while the Budget size has increased from Rs 21.47 lakh crore to Rs 24.42 lakh crore i.e. an increase of 13.74 per cent. This would mean that other sectors have benefited more than the rural sector. If we see expenditure on all Central Schemes in their entirety, we would find that no new scheme has been included in the Core of Core Schemes or even the Core Schemes. Probably, the schemes announced in the Budget would be included in the existing broad-based schemes, for example the Green Revolution or Pradhan Mantri Sadak Vikas Yojana. The increase in the number of schemes is likely to result in implementation problems, which would mean that the schemes may not deliver the desired results. Probably, the time has come when instead of schemes being formulated by the mandarins of North Block, the persons likely to be affected by the schemes are consulted in their formulation.
There have been some changes in personal taxation. Standard Deduction of Rs 40,000, which subsumes medical and transport allowance of an almost equal amount, has been provided to salaried taxpayers. In view of inflation, there was a strong case for upward revision of slabs. Similarly, the Government could have garnered some badly needed funds by upward revision of deduction u/s 80C.
The promised reduction of 5 per cent in Corporate Tax rate has been announced for companies with a turnover below Rs 250 crore. This has been partially offset by an increase in surcharge on tax from 3 to 4 per cent. The Government has been careful to name the new cess as Health and Education Cess given the earlier year’s experience when people used to ask about the utilisation of the Swachch Bharat Cess. Most of the tax proposals relating to business entities are in the nature of corrections except the imposition of capital gains tax on share sales which has apparently been done with the aim of funding the Government’s populist measures.
The Finance Minister must be complimented on delivering a very crisp budget speech clearly spelling out the direction in which he wanted to steer the economy; but it would have been better if he had also tried to warn us about the problems likely to be encountered in the coming year(s). For example, the Economic Survey released by the Government on January 29 has predicted a downswing in agricultural income by 25 per cent, while in the Budget Speech the Finance Minister promised a doubling of agricultural income in the next four years. This apparent anomaly deserves to be resolved, more so because the current Budget positions itself as a farmer-friendly budget.
The Economic Survey had sounded some caveats about the economy’s performance in the coming year ~ stabilization of GST implementation to remove uncertainty for exporters, facilitate easier compliance, and expansion of the tax base; privatization of Air-India; and addressing threats to macroeconomic stability, notably from persistently high oil prices, and sharp, disruptive corrections to elevated asset prices. There is no mention of these constraints in the Budget.
However, the marked divergence in what is proposed in the Economic Survey and what appears in the Budget is nothing new. The current Economic Survey was a remarkably well researched document which enunciated a view on almost all socio-economic problems of the day. It is a pity that the Budget has not utilised inputs from the Economic Survey but has only attempted to increase the feel-good factor of the poor and middle class with nary a thought to long-term problems. Commenting on the Economic Survey, the Chief of the Economic Advisory Council to the Prime Minister, Mr Bibek Debroy, had pointedly stated that the Survey would not provide any clue to the Budget. This would have one wonder on the need of having the Economic Survey at all.
This Budget has only 50 clauses and runs into 36 pages, against the 150 clauses and 75 pages of the last Budget. The current Budget also does not have any non-monetary clauses ~ welcome changes from the last budget. However, the current Budget has not tried to address the problem of implementation of the various schemes announced in successive budgets. If the Finance Minister is really interested in the welfare of the rural poor, instead of announcing grandiose schemes he has to invest in the creation of a cadre of dedicated rural workers who would ensure that the existing schemes are properly implemented and benefits reach the people for whom they are intended.
In the interest of fiscal consolidation, a much touted goal of the Government, the Finance Minister would have been better advised to adhere to the fiscal deficit target of 3.2 per cent of GDP ~ which he has overshot by .3 percentage points despite the contrived sale of HPCL stake to ONGC which garnered Rs 36,915 crore for the Government. One feels that even at the cost of dropping some populist measures in the Budget, an attempt should have been made to curb Government expenditure. In the final analysis, for long-term stability, all Finance Ministers should be guided by what George Washington said about the Budget: “We must consult our means rather than our wishes.”
(The writer is a retired Chief Commissioner of Income-Tax)