A non-sexy but potent budget

At last, the rock-star has turned into a homemaker. And happily so. With proper and sincere implementation, the country can resume its cruise towards a prosperous future. There will be an immense growth in consumer demand, as well as purchasing power, it will have a multiplier effect on not only the GDP growth but also tactile overall development of various strata of India’s economy.

In Finance Minister Arun Jaitley’s latest budget, hype and hoopla over a real or fictional ‘big idea’ are absent. The Modi brand of bombast has been replaced with a staid and sensible approach towards tackling various problems confronting the Indian economy – both at the structural as well as implementation levels. Apparently, at last, the rock-star has turned into a homemaker. And happily so. Of course, this budget will have no appeal for the urban middle classes since there is no increase in income tax exemption limits, and no change in the slabs or decrease in income tax rates. The super-rich might quibble a bit over the additional burden of cess without any major incentive or concessions for corporate houses. The glam quotient, thus, is totally absent this time.

Former Prime Minister and eminent economist Manmohan Singh, universally accepted as the father of economic reforms in India, has criticized the budget for lacking a ‘big idea.’ But, with due respect, the envisioned doubling of the farmers’ income by 2022 is a good enough big idea worth striving for. Other critics point out that this doubling of income may not come about, keeping in mind the NDA government’s track record. They also point out how various factors, especially the two consecutive droughts, have hurt the Indian, particularly rural, economy grievously; funds for a range of rural schemes like MNREGA and Rashtriya Krishi Vikas Yojana etc, along with some important irrigation projects, were either held back or drastically reduced during the initial years of the Modi regime. 

Happily, this negativity has been now rectified with a never-before high allocation of Rs. 38500 crores for MNREGA. Further, Rs. 5500 crores have been allocated for the PM Fasal Bima Yojana (crop insurance). Steps have also been announced for efficient procurement of pulses. To ensure better returns to farmers, a more effective marketing structure has been envisaged under the Unified Agriculture Market Scheme.  An outlay of Rs. 35,984 crores has been announced for the farm sector alone. Further, the farm credit target for FY 17 is pegged at Rs. 9 lakh crores. Then there is a refreshing refocus on the rural infrastructure. For example, Rs. 19000 crores have been earmarked for constructing roads in rural areas under the PM Gram Sadak Yojana. Rs. 60,000 crores have been provisioned for sustainable management of water resources. For FY 17, Rs. 17000 crores will be spent on various irrigation schemes. 89 irrigation projects will be fast-tracked and 2.85 million hectares of land will be brought under the PM Irrigation Plan. NABARD will be responsible for a new irrigation fund of Rs. 20000 crores. Obviously, the NDA government is going all out to realize its vision of doubling the farmers’ income by 2022. Whether this actually happens, only time will tell. But, if this target is substantially achieved, there will be an immense growth in consumer demand, as well as purchasing power, it will have a multiplier effect on not only the GDP growth but also tactile overall development of various strata of India’s economy.

However, there may be other related developments in the rural sector. Like, easily accessible, affordable and efficiently working healthcare for all. Sanitation is another major area of worry. But, vitally, it is the quality of education that needs to be urgently and comprehensively upgraded in most villages. It is not just about buildings and other infrastructure but also such inputs as skilled and educated personnel – be they teachers, doctors or other professionals, presently woefully inadequate if not totally absent in vast swathes of the countryside. 

The FM has done well not to make any major change in the Income Tax rates, except for certain cesses on the super-rich. Happily, 13 types of cesses have been proposed to be abolished. This is a good omen as it indicates the government’s resolve for being consistent. Moreover, the emphasis is on making tax related administration more efficient.  The setting up of 11 new tax tribunal benches will reduce delays in recovering overdue taxes and help resolve tax related disputes. There will be a stick and carrot approach to tax recovery. While the tax regime will be made more public-friendly through such rationalizations as of TDS provisions and adoption of ‘low tax regime with non-litigious approach,’ there will be harsher penalties of up to 200% for non-disclosure and under-reporting of incomes. 

With an overall outlay of Rs. 2.18 lakh crores for rural roads, highways and railways, the infrastructure is getting a huge support this time. 97000 crores will be spent on roads. 50000 kilometers of state highways will be converted into national highways. To facilitate smoother movement of traffic, especially commercial traffic, various reforms like abolishing of the permit system. Again, the government is seriously provisioning infrastructure development in terms of ports and airports. The national waterways project is already underway for which 800 crores have been earmarked. About 160 airports and airstrips in different states, and 10 airstrips under the Airport authority of India, will be revived. This is aimed at giving a big boost to entrepreneurship and job creation.

With tax hikes on tobacco products and luxury cars etc, and hefty food and fertilizer subsidies, (the total subsidy outgo will remain substantial at 2.5 lakh crores), the budget might give an impression of being populist. But this will be a misreading. In fact, it is investing on long gestation projects in the rural areas, a step which was long overdue. In the bargain, the present NDA government may not be able to earn any immediate appreciation as results of investments in the rural infrastructure will take time to fructify. But, these investments will eventually make the country’s economy robust. Our industries will not have to depend upon exports for their survival, but may very well prosper thanks to the increase in the purchasing power and consumer demand in the rural areas. More importantly, the socio-economic distress that we are witnessing in the villages will subside with rise in income and improvement in employment opportunities.

There are other long-term reforms on the anvil, which may not earn immediate universal kudos. For example, reforms like bank recapitalization will be painful but rewarding in the long run; there are also indications of PSU banks’ consolidation and reduction in government stakes in these banks to 52%; in the case of IDBI, such stake may even go below 50%. Similarly, the insurance sector, too, is in for some important changes. Divestment too is going to be pursued more rigorously. 

Will this budget help rejuvenate India’s development? At this stage, the prospects may not look too rosy, but with proper and sincere implementation, the country can resume its cruise towards a prosperous future.