A Synthesis of the Union Budget 2017-18

The Union Budget 2017-18 got all the limelight it wanted, first with the dates right before the assembly elections in a few major states, and on the morning of the D-day due to passing away of a sitting MP, inciting ruckus from the opposition to adjourn the parliamentary proceedings for the day. Thought the first two minutes of the speech were disrupted by constant hulla-bulla of the opposition, thanks to Mr. Jaitley’s determination to go on, he started the speech with the words ‘auspicious day of Vasant Panchami‘ and finally the ball was set rolling for the two hour long speech.

After a brief part on demonetisation, the budget was broken down into 10 major themes, covering major sectors of the economy. These 10 sections were sprinkled with badly spoken good shayari, poetry and quotes by Mahatma Gandhi. I shall now quickly get down to business and analyse relevant parts of the Budget:

1) Education and Skilling: A good announcement was setting up of an Innovation Fund for the Secondary section at backward blocks. This will encourage free thinking among students. Though there were two bad announcements. Rather, one announcement was completely given a miss. Firstly, the setting up foreign language centres in order to ‘encourage students to pursue employment opportunities outside of India’ sounded like encouraging brain drain. Learning a foreign language is an expensive affair and only the affluent who have received quality education will pursue it. Secondly, there was no mention of Primary Education. The recent ASER Report brings out a very gloomy picture of the primary education in India and severe steps are required to be taken immediately. Only 5 lac persons were targeted to be skilled by providing mason training upto 2022  as against the annual job creation of 1 million minimum in order to make good the demographic dividend.

2) Fiscal Deficit, IDS and Inflation: The Fiscal Deficit was pegged at 3.2% of the GDP and the revenue deficit at 2.1%, 0.2% points down from the previous year. This means the amount of debt taken has increased. Secondly, the Finance Minister declared that he was forgoing a revenue of Rs. 22000 crore. However, take into account the IDS schemes and the deposit into the Jan Dhan accounts after demonetisation. The declaration in IDS 1 was Rs. 64000 crore. A 46.25% tax increases Government revenue by almost Rs. 29600 crore. Take a similar amount of tax on even 50% of Jan Dhan accounts that amounted to Rs 41000 crore, and stricter and steeper tax and penalty rates for IDS 2. Also, the Government said that a total of 1.8 million accounts are under scrutiny after demonetisation. This all is over and above the windfall that the Government will gain out of the reduced liability of the RBI over the notes that were not returned. Such a huge windfall revenue increases fiscal space for the Government to spend and may indicate an inflationary pressure.

3) Corporate and Income Tax: A huge boost came in for MSMEs earning a revenue of less than Rs. 50 crore a year. Though the effective rate for big companies is somewhat similar, it is high time that deductions are done away with and a flat tax of 25% is levied. The Rs. 250000 to Rs. 500000 slab will now be charged 5% income tax. This comes in as a huge relief for the salaried class. This is exactly where the Government is mainly forgoing revenue. However, a surcharge of 10% on income filed between Rs. 50 lac and Rs. 1 crore and that of 15% for income greater than 1 crore serves as an equalizer and helps in redistribution of resources in the economy, in whatever small way. Reforms in capital gains tax by the way of giving multiple investment options to gain exemption from taxing of capital gains will boost domestic investment. Shifting of  base year from 1981 to 2001 for the purpose of indexation of value of assets will also bring down taxable capital gains.

4) Digital Economy: The announcement of production and mobilisation of 10 lac PoS machines and 20 lac Aadhar PoS machines comes as a great push to sustain digital payments even after the economy is remonetised in the near future. It is more convenient to pay by card or use your thumb print to pay rather than PayTm. It also depends on what cash-to-GDP ratio does the Government stop the remonetising process. A removal of a number of service charges on PoS machines too helps the cause. However, cashback on using BHIM app seemed juvenile by the Government. Also, waiver of service fee over online booking from the IRCTC website is a welcome move in this respect.

5) Political Party Funding Reforms and Black Money: Setting a ceiling of Rs. 2000 for cash donations from one source for political parties is a bold move. This will help in curbing black money in a huge way. Citizens can now also subscribe to Electoral Bonds in order to lend to a particular party, making the donation process more transparent. Announcement to curb black money in the realty sector were not made. Also, there were no major tax reforms in order to stop the flow of black currency again once the economy is remonetised. Such reforms will only sustain effects of demonetisation in the long run.

6) Infrastructure, Real Estate and Railways: The total package for Infrastructure sector still remains the highest at almost 4 lac crore, which includes 1.31 lac crore for the Railways. The push for solar energy was feeble at 20000 megawatts in this year as against an overall target of 100 gigawatts in the next 5 years. Affordable housing received sops. The 30 and 60 sq. metres built up clause was changed to carpet area taking the 60 sq. metres which roughly converts to 840 sq. feet, say a sizeable 2BHK flat. There were more relaxations for interest deductions. Also affordable housing was given infrastructure status, thus making credit from banks easily available to realtors for this specific purpose than before.

7) Agriculture and Rural Sector: Agricultural credit has been set at a record target of Rs. 10 lac crore. Soil testing labs for the purpose of insurance will lead to efficient use of resources. e-NAM came back in a huge way and sops were given for the same. This will bring down commodity prices in the hands of the final consumer. MGNREGA was allocated Rs. 48000 crore, however last year’s payments from the Center to the States are in arrears to the tune of Rs. 6000 crore. The total allocation for these two sectors combined is about Rs. 1.87 lac crore.

All in all, I rate the budget an 8 on a scale of 10.

 

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