It was a Budget which seemed to be too long and cautious. It also did not seem to deviate from the path of previous budgets. If this budget is like a prelude to something more drastic to come in the future, then it is quite acceptable. Because although Finance Minister Arun Jaitley acknowledged quite succinctly, all the areas of weakness, the Budget did not have many new features and did not contain a clear and crisp roadmap for a prosperous India. Hopefully in the next Budget , the government will move away from the Congress prototype and shadow and have something new of its own to say. Meanwhile, if the economy does well and there is a turnaround, the next Budget will be a bold one.
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The Finance Minister started off by rightly pointing out that the economy is in bad shape and there has to be an agenda for macroeconomic stabilisation and concrete future action. The Modi government inherited not only a fiscal mess but also an economy burdened with inflation, low GDP growth and slowdown in investment and manufacturing as well as inadequate infrastructure. In a surprisingly detailed way, many diverse areas were touched upon, but the direction that the corporate sector and the Aam Admi was waiting for was missing.
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In general, the Modi government posed a budget that guaranteed a continuum of Congress government policies and there was no drastic change or turnaround from social sector sops. Rumors were rife about mindless subsidy cuts and doing away with many of the welfare schemes. Instead, the Budget contained many small schemes that were aimed at appeasing various sections of the population—mainly the poor and the underprivileged.
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The emphasis on the girl child was a welcome feature which translates to acknowledging the fact that despite all the glamour of high economic growth and India being third in the world in terms of GDP (PPP), much need to be done to save girls from being killed before birth. The Budget has also made provisions for giving them education. Women's safety in cities is also a crying need to which there was a mention in the Budget.
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Somehow, the Modi government has risen up to the challenge of fiscal consolidation and keeping the fiscal deficit at 4.1 per cent of the GDP. How this is going to be done was not spelt out clearly. One is not sure from where additional resources will be garnered as no disinvestment plans for some ailing PSUs was announced.
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Regarding income tax, the exemption limit has been raised slightly to Rs 2.5 lakhs which means now more people will not be paying direct taxes. In general, serious efforts should have been made to bring more people in the tax net because in a huge country like India, only 2 to 3 per cent people pay income tax. Bringing back black money stashed abroad was also mentioned but what about getting the black money of India out of the various ways in which they are hoarded and using it for development? The corporate sector was no doubt disappointed that the retrospective tax has not been repealed but instead a committee has been appointed to settle disputes.
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For encouraging investment, tax exemption under Section 80 C has been increased from Rs 1 lakh to Rs 1.5 lakh. India needs FDI especially in infrastructure and to the delight of many, the limit for FDI in Insurance has been raised to 49 percent. FDI in defence has also been opened up which is somewhat controversial and could be a security concern. FDI in housing has been encouraged and the limits for investment have been raised. FIIs that left India and are based abroad have been encouraged to return to India because now there will be no tax on income but only on capital gains. Long term capital gains tax however has been raised much to the disappointment of investors in long term debt. E-commerce in retail has been allowed, but no FDI in multi-brand retail came through.
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For removing poverty in India surprising amounts of sops have been offered. Giving skill training to youth in a serious and sustained manner will reduce poverty because with training, the youth will get jobs and help families to get out of poverty. Also, lots of extant rural poverty alleviation schemes have been enhanced but isn't the main problem with multiple schemes one of implementation?
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The emphasis on solving the pressing problems of rapid urbanisation is welcome and the slum development scheme and 'housing for all' schemes would hopefully lead to a big improvement in the availability of low cost housing.
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In agriculture, an area in which most important announcements were made, the significant ones related to storage and marketing. If farmers can directly sell their produce to local agents instead of taking it to the mandis, there will be quicker availability of produce from farmers to consumers. Also storage capacity enhancement will lead to price stability. Restructuring of the Food Corporation of India and the public distribution system have been promised.
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The various promises for more IITs, IIMs, AIMMS type of medical research institutions are all welcome continuation of past policies of the Congress led UPA government. Development of infrastructure, roads, ports, river projects and cluster has also figured. Jaitley also talked about improving EPZs and addressing the problems of small and medium enterprises. There will be 20 new industrial clusters for their benefit.
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But why was there no Big Bang change in the Budget? After all, the Modi government had the full mandate to do so. But instead, it took hesitant small steps. Why was he playing with Lego like blocks instead of huge building blocks? One wonders. It could be because the time was short and the Budget was put together in a hurry. More policy changes that will give a clear direction to the foreign investors, the corporate sector and the ordinary middle class people as to which direction the economy is moving, are sure to come, especially when a higher trajectory of growth has been promised.
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<em>(The writer is a Senior Fellow at Observer Research Foundation, Delhi)</em>
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