Too Little Too Late?
From his first Budget in 2014 to a decisive one in 2017, Jaitley continues to miss meeting the middle class’ expectations
Photo Credit : Himanshu Kumar
10 July 2014: Finance minister Arun Jaitley presented his maiden Union Budget within 45 days of assuming office. The National Democratic Alliance (NDA) had just stormed into power with a decisive majority. Expectations of over 1.2 billion people were unreasonably high especially as Prime Minister Narendra Modi’s poll campaigns were based on the promise of acche din and sabka saath sabka vikas.
Dampening high expectations, Jaitley presented a lacklustre budget. Though he promised to bring in stability in the tax system and reaffirmed his commitment to gifting a high and sustained growth rate of 7-8 per cent, he provided no clear roadmap to tackle the economy.
“The steps that I will announce in this Budget are only the beginning of a journey towards a sustained growth of 7-8 per cent or above within the next 3-4 years... Therefore, it would not be wise to expect everything that can be done or must be done to be in the first Budget presented within 45 days of the formation of this government,” Jaitley said.
While many agreed with the finance minister when he said his government had little time before presenting the first full Budget, Sanjaya Baru, secretary general, Ficci and media advisor to former Prime Minister Manmohan Singh minced no words. “Jaitley’s first budget was a disappointment, he wasted an opportunity,” Baru said, adding that the BJP should have had a budget strategy in place.
The second budget, presented by Jaitley, too lacked any big picture with too many details.
Much water has flown since then. The government undertook the unprecedented demonetisation exercise on 8 November 2016. Thereafter, on 1 July 2017, the GST was launched. Both disrupted the country’s economic growth, albeit temporarily.
In his last two budgets, Jaitley, also attempted to outline bold measures aimed at rekindling the growth story. The government has taken definitive action to address the burgeoning non-performing asset (NPA) levels in public sector banks. While the finance ministry announced a Rs 2.11 lakh crore recapitalisation plan for these banks, it put in place the Insolvency and Bankruptcy Code. The monetary policy framework, too, has been implemented to decide on policy rates.
Though Jaitley has undertaken a host of measures to put the economy back on track, they could have been more effective had they been introduced earlier, said a section of policy watchers. Many of his promises such as touching a high growth rate of about 8% and bringing down tax rates still remain unfulfilled even after four years.
Growth story: India is set to clock a growth rate of 6.75 per cent in the current financial year. While India did achieve an economic growth rate of 7.9 per cent in the April-June quarter of 2016-17, the announcement of the demonetisation exercise came as a shocker to India Inc. Over 86 per cent of the country’s high value currency was wiped out leaving many businesses especially the MSME crippled. Growth rate for April to June quarter of the current financial year decelerated to 5.7 per cent. While the data by Central Statistics Office in January indicated that GDP growth in 2017-18 will touch 6.5 per cent, the economic survey said the country will grow at 6.75 per cent.
“There have been a few disruptions, which have impacted growth rate but things are now stabilising,” said SBI Group’s chief economic adviser Soumya Kanti Ghosh. “Jaitley has evolved as finance minister... now there is greater focus and vision with firmness of intent but the measures come too close on the heels of the elections,” Baru added.
Tax: The NDA government promised to reduce tax rates and expand the base. Jaitley said high tax rates was one of the main reasons for tax evasion. While presenting the budget in February 2015, he laid the roadmap of reducing corporate tax rate to 25 per cent from 30 per cent in four years.
However, the finance minister has offered little relief to the country’s honest tax payers. In fact, in this Budget, he announced levying long-term capital gains tax on equity investment and dividend distribution tax on mutual funds. The fresh wave of taxation on financial investing and subsequent fall in markets may force small investors to turn back to gold or real estate investing.
In the last budget, Jaitley reduced tax rate for companies up to a turnover of Rs 50 crore. This year, he extended the benefit to companies having a turnover of up to Rs 250 crore—which would include firms categorised as SMEs. However, this announcement aimed at partial relief has brought little cheer to India Inc. “There was expectations that overall corporate tax rates would be reduced to 25 per cent but clearly that has not happened,” said an analyst.
Introduction of the GST, though has been one of the high points of this government, its roll-out and multiple rates has brought grief and anxiety to the business community. “We had welcomed the launch of the tax but the way it has been rolled out and the pain that the traders are going through to file returns is unprecedented and this needs to be immediately corrected,” Praveen Khandelwal, secretary general, Confederation of All India Traders (CAIT) noted.
“There have been teething problems but gradually tax collection from GST is stabilising,” Ghosh, however, added.
Fiscal deficit: The fiscal deficit, which has a direct bearing on the country’s sovereign rating, in 2013- 14 stood at 4.5 per cent. Jaitley can definitely take some credit for containing fiscal deficit, though the target of 3.2 per cent set for the current financial year will be breached. In his Budget speech earlier this month, he said fiscal deficit for 2017-18 will touch 3.5 per cent while for the next financial year the target was set at 3.3 per cent against 3 per cent fixed by the Fiscal Responsibility and Budget Management Act. “Bringing back growth and giving a boost to the agriculture and rural sectors is crucial, a little deviation from the set fiscal deficit targets will not hurt the economy in any way,” added Crisil’s chief economist D.K. Joshi.