It is hard to slot this budget in any particular box. The usual heads like P Chidambaram’s dream budget — which actually turned out to be a nightmare — or a populist budget do not fit Arun Jaitley’s last offering for a full financial year before the return to the people for a fresh mandate sometime before May next year. It is so well crafted, with a vast amount of detail, that one is hard put to pick one major strand. A gamut of tinkering in the rates is an inevitable part of any budget.
But this one virtually leaves the basic direct and indirect tax rates untouched. The newly-introduced GST having been subjected to frequent rate revisions, the Finance Minister reckons it might be time for him to reap the bonanza from better compliance and a larger tax net. He has assumed higher collections from GST in the coming full year, especially after the introduction of the e-billing for intra and inter-state transfer of goods. The big fear that the budget will distribute goodies with an eye on the election in eight states this year and a general election next was unwarranted.
Despite the growth slowdown, particularly following the disruptive interventions of demonetisation and GST, the fiscal deficit mercifully has been kept in check. Though unable to maintain the projected 3.2 percent for the current year, the revised figure of 3.5 percent does not cross the redline. The projection for 2018-19 at 3.3 percent of GDP appears to be attainable. This was one figure the share markets had their gaze fixed on, and from the reaction it appears they did not feel overly disappointed. Even the global rating agency, the Moody’s, believed that fiscal deficit of 3.3 percent for the next year was reasonable. But if the share markets flip-flopped on the Budget Day, it was because these were buffeted by contrary signals. The introduction of the long term capital gains tax, albeit in a homeopathic dose, dampened the mood but the reduction of corporate tax from 30 to 25 percent on companies reporting less than Rs 250 crore profit seemed to have enthused them.
Though this would benefit over 90 percent of the entities in the corporate sector, the actual yield of tax is relatively small as against the total collections from the remaining 10 per cent corporations. in this context, a curious figure to emerge from the Finance Minister’s speech was the average yield from total income tax collections was about Rs 76,000 crores per head while the average per corporate entity came to a mere Rs 25,000. Which prompted a commentator to wonder why more and more salaried people wanted to give up the security of jobs to try their luck in business. The answer probably lay in the fact that business can break or make fortunes while the salaried classes cannot hope to dream big as long as they stick to the security of the monthly paycheck.
The salaried class can draw solace from a cumulative deduction of Rs 40,000 per annum as against about Rs 35,000 available currently by way of standard medical and transport deductions. Senior citizens too have attracted Jaitley’s attention with higher deductions and reduced taxes on interest income from investments in specified schemes. But the biggest news lies in what the Budget promises — and if half is implemented by the time the people vote for a new government next year, Modi is assured of re-election. For, a Rs five lakh health cover for ten lakh families virtually paves the way for universal health insurance. The funding remains unclear, though the additional Rs 11,000 crores from a one percent hike in education and health cess from three to four percent might prove useful.
Likewise, the plan to build at least one health and wellness centres for every three districts at an expenditure of Rs 1,200 crores is aimed at the rural poor. The promise to offer free electricity connections to four crore rural poor and to offer free LPG connections to eight crore rural families are all election-winners. The emphasis on the agrarian economy comes across also from the promise to pay fifty percent above the minimum support price for specified farm produce. There is more on the same lines for the rural sector, probably spurred by the backlash from the rural constituencies in the recent Gujarat Assembly.
On the whole, despite it being an election budget, Jaitley has avoided opening the purse strings and thus invite the wrath of the foreign investors. Admittedly, the big-ticket investment schemes for public welfare will evoke scepticism given the endemic gap between promise and performance. If, however, half of what he is promised is implemented, the Budget would have done its job for the ruling party. Meanwhile, the results of the by-elections in Rajasthan and West Bengal need not hold much significance. The Rajputs were determined to wreak vengeance following the release of Padmavaat, and the general stock of Chief Minister Vasundhara Raje is rather poor. In West Bengal, Mamata Banerjee currently is undefeatable — as the Marxists were two decades ago — though the fact the BJP has replaced the CPI(M) as the number two party, pushing the Congress to the fourth place underlines the shape of things to come in the border State with nearly one-third minority population.
