A Needy Tinkerer's Budget

A Needy Tinkerer’s Budget

Where are the 2^nd generation structural reforms this country and its would-be foreign investors have been waiting 25 years for?   

Where is even the massive push to revive rural India?  The rural sector needs at least Rs. 300 lakh crores in direct development funds right here right now - if words like transformational can be applied to it.

There is Rs. 87,765 crores allocated to ‘rural development’, but this is already part of the one happy ‘infrastructure figure’ in this budget.The Rs. 2.87 lakh crore announced for gram panchayats and municipalities, is an intent.

The finance minister may well claim an increase in the GDP from 6.3% to 7.6%, but most of this has come from lower petroleum prices. Internally, via the efforts of the NDA government over 21 months, India has not grown much. It is still in dire need of a set of bold initiatives. Alas, this budget, like the two before, is not it.

This budget can best be described as a compendium of detail and petty husbanding of resources, a fiddle-faddle, a tinkering.

Nobody in the finance ministry has thought fit to attempt the make-or-break budget called for. There is hardly anything large enough in it to make any section particularly happy, with the sole exception of a healthy allocation of Rs. 2.21 lakh crores, all to be spent this year, to infrastructure.

This, of course, includes highways, rural-roads, and the railways. But still, it is likely to yield new jobs, and fine long-term economic results.

Almost everything else, including the unproductive, if humanitarian, dole of the highest-ever allocation for MNREGA (Rs. 38,500 crores), is not going to do very much.

All over the budget speech, the finance minister demonstrated his characteristic trickling of ambition, as if using a domestic watering can, when a flood of resources and bold action is called for.

The priority ostensibly given to the rural sector is not accompanied by structural policy changes that could have brought in a surge of badly needed foreign investment.  

Instead, paltry sums are allocated to try and deal with 50% of the population in crisis after consecutive years of drought and flood. There is just Rs. 35, 984 crores allocated for agriculture, and a target of upping agricultural credit from Rs. 8.5 lakh crore to Rs.9 lakh crore. There is Rs. 60,000 crores for recharging ground water, and even less for irrigation. Another miniscule Rs. 5,500 crores for the Fasal Bima Yojana. A token Rs. 412 crores has been placed towards encouraging organic farming.

Rural electrification though, such as it is defined, is proceeding apace.  

There is a nod towards the food processing sector- 100% FDI will be permitted in the marketing of value-added produce, as long as it is processed in India.

With such dynamism, the intention of doubling farm income in five years seems decidedly dodgy.

In broader terms, looking at the rest of  the proposals, the indelible stamp of bureaucracy blended with a discernible tug towards the left is evident.  

Cars and SUVs of all types will cost more, as will jewellery. Dividends will now be taxed in the hands of those who earn more than Rs. 10 lakhs from it. Smokers will fork out 15% more in excise duties.

 There is minutiae when it comes to reliefs:  1% reduction in corporate income tax to 29%; no changes to individual income taxes except for raising the HRA rent deduction from Rs. 24,000 to Rs. 60,000. Tax rebate under another section of the IT Act for those who earn Rs. 5 lakhs taxable, raised from Rs. 2,000 to Rs. 5,000! There is also a Rs. 50,000 deduction on home loans up to Rs. 35 lakh for a first home, priced at not more than Rs. 50 lakhs.

Most incentives are equally niggardly: Start-ups will get tax exemption for 3 years except for MAT. Service tax, which now stands at 15%, is exempted from affordable housing upto 60 sq.metres.

The plan to ‘skill’ I crore youth over the next three years begs the question whether there will be jobs created for them.

Much has been made by observers over the government’s resolve to retain the fiscal deficit target unchanged at 3.9% for FY16 and 3.5% in FY17. The logic being that possible inflation from a more relaxed fiscal deficit would be the most pernicious of taxes, and hit the poor the hardest. The resultant higher levels of investment into growth sectors that allowing a higher deficit would have permitted, does not seem to have many backers. In any case, the government has opted against it.

Some welcome liberalisation: shops can stay open for all seven days just like malls. Privates can operate public transport systems. Income tax officials will have less discretion to harass.

But, overall, yet another lost opportunity for this government.

For: The Quint

(800 words)

February 29^th, 2016

Gautam Mukherjee