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FM’s Damage Control Budget
For others in the informal economy, the worst affected by demonetisation, the union budget offers nothing
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Finance minister Arun Jaitley presented Budget 2017 against the backdrop of the devastation caused by demonetisation. Its central thrust is damage control. This is clearly seen in three measures:
One, Jaitley, who read out the Budget on 1 February, has hiked MGNREGA allocation to meet increased demand as migrant workers returned to villages after urban construction ground to a halt post demonetisation. Some of this may go to clear pending liabilities of Rs 14,000 crore.
Two, the lowering of the tax rate to 5 per cent for people earning less than Rs 5 lakh per annum. This attempts to partially revive India’s consumption-driven economy, which took a massive hit from demonetisation.
Three, corporate tax rates have been cut from 30 per cent to 25 per cent for Medium, Small and Micro Enterprises. This sector is collapsing after demonetisation. So, it may be too late for many, especially those unregistered.
However, for others in the informal economy, the worst affected by demonetisation, the Budget offers nothing. The poor continue to be crushed by the government’s reliance on regressive indirect taxes to shore up its revenues. The Budget numbers reveal how the government levied massive excise duties on petrol and diesel, at a time when global crude oil prices were falling. Had the benefits of lower prices been passed on, the cost of living would have come down and private spending would have increased.
Farmers were substantially ignored in the Economic Survey. This year’s Budget too provides no clear road map on how their incomes will be doubled in five years. Increased farm credit may flow more to agri-business firms who corner interest subvention in the name of farmers. Other measures — insurance, electronic marketplaces, etc., — are good to have, but unfortunately do not directly provide relief to debt-distressed farmers.
Jaitley announced a record Rs 3.96 lakh crore of infrastructure spending. Every year, we see such tall promises. However, there is a wide gap between the NDA government’s targets and its ability to execute. We have seen this with Swachh Bharat, roads, Digital India rollout, soil testing centres, etc. When the numbers are tallied at the end of the year, the unspent amount helps meet deficit control targets, at the cost of the economy.
Even then, this year, Jaitley will miss the original fiscal deficit target, aiming for 3.2 per cent instead of 3 per cent. At a time when foreign portfolio investment is declining, this is not a good signal to investors.
Clearly the expected windfall from demonetisation did not come through. Further, with growth slowing, Jaitley has been forced to deviate from his commitment to fiscal deficit reduction targets.
Jaitley’s response to the crisis in private investment is tepid. Industrial credit growth is at a historic low, suggesting that stressed banks are hesitant to lend while entrepreneurs are hesitant to invest. Still recapitalisation of banks gets a token Rs 10,000 crore.
On 30 January, former Prime Minister and Congress leader Manmohan Singh released ‘Real State of the Economy 2017’, a report on the current state of Indian economy. The report highlights that job creation is the central crisis facing the country. Around 1.5 lakh new jobs were created last year. Instead of heeding the Economic Survey’s advice to focus on apparel and leather, which create substantial employment, there are no specific incentives for these sectors in the Budget.
To be politically correct, Jaitley lowered the anonymous donation limit to political parties to Rs 2,000 from Rs 20,000. This will have little impact as parties will just show an increase in the number of unknown donors. There is little clarity on the political bonds idea he floated, so one can only commend the intent to reform political funding.
Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.