Budget focuses on State elections
For the first time, the Union government has presented a Budget that is focused more on state elections than on business concerns for the industrial slowdown and the state of infrastructure. With five states going to the polls, the BJP-led NDA government has preferred rural population, industrial workers, small enterprises to big business and industry to provide handsome financial support at the cost of medium and large entrepreneurs. Bharatiya Janata Party is clearly preparing itself to win over electorates in five principally agriculture-dependent states – West Bengal, Tamil Nadu, Kerala, Puducherry (Union Territory), and Assam – that go to polls within next three to four months.
The state elections appear to be as important as Parliamentary election before the BJP to boost the party’s national image in the face of its recent loss in Bihar after Delhi, a year ago, and brewing political controversies one after another and improve its presence in Rajya Sabha. BJP seems to have found the merit of socialism over capitalism as the rich and middle class will be required to pay more to support the party’s focus on rural poor.
There is little doubt about the basic objective of the 2016-17 Budget that is to reach out to farmers, rural poor and small entrepreneurs. Prime Minister Narendra Modi’s political acumen may have influenced key pro-people provisions in the Budget more than generally business-friendly Finance Minister Arun Jaitley’s concern for industrial growth and investment. The central plan outlay for agriculture and allied activities to benefit the farm sector has been raised by over 80 percent in the current Budget to Rs. 19,394 crore over the 2015-16 level of Rs. 10,942 crore, accounting for the biggest jump in any sector. Energy, Transport, social services, general economic services, science, technology, and environment are other key areas of larger Central plan outlays during the next financial year. The resources to be transferred to the states are to go up by only around eight percent to Rs. 9,37,705 crore in 2016-17. The states’ share of taxes and duties is around 23 percent, almost 100 percent more than the central plan’s share.
Finance Minister Arun Jaitley put it straight, the government’s agenda for the next financial year to “Transform India” with nine distinct pillars. They include agriculture and farmers’ welfare with the focus on “doubling farmers’ income in five years”, creating rural employment and infrastructure, and covering all under welfare and social services, making India a knowledge-based and productive society with the focus on education, skills, and job creation. A massive sum of Rs. 2.97 lakh crore will be given as “Grant in Aid” to gram panchayats and municipalities, recording a quantum jump of 228 percent compared to the previous five-year period. Similarly, the nine-point thrust for the government’s tax proposals includes relief to small taxpayers; measures for moving towards a pensioned society; promoting affordable housing for the poor; and additional resource mobilisation for agriculture, rural economy, and clean environment. A modest 0.5 percent “Krishi Kalyan Cess” on all taxable services has been proposed in the Budget, the “proceeds of which would be exclusively used for financing initiatives relating to improvement of agriculture and welfare of farmers.” Similarly, the brunt for resource mobilisation to support agriculture, rural economy, and environment will be borne by tax on fat dividend and income earners.
With domestic investment down, the Budget relies more on SMEs and foreign direct investment to “make in India” and grow the economy. A host of incentives, including majority control by foreign investors, fresh impetus to foreign portfolio investors (FPI), higher FPI participation (up to 49 percent) in listed central public sector undertakings’ equity and according “residency status” to foreign investors will be provided to foreign investors to pep up both industrial investment and stock market. The Budget depends heavily on FDI for growth in both the manufacturing and services sectors. For the domestic industry, it may appear to be a dull Budget. Industry expected a lot from the Budget by way of duty reduction and large government and public sector investment in infrastructure. Several domestic industries are reeling under high tax regime and constant threat from cheap imports. They may have to deal with these adversities for some more time.
For all said and done, it is a good budget for rural Indians, the poor and senior citizens, who have long been used to high sounding words from the country’s finance ministers. However, much of its success may ultimately depend on the election results in the five states by the middle of this year. It is a high stakes Budget for the Prime Minister and his party. BJP’s political opposition is, naturally, upset, if not concerned. CPI’s Rajya Sabha leader D. Raja’s comment on the Budget appears to be most crisp as he found “outside budget, they (BJP) promised a lot to the corporate sector. Not evident now. Nothing spectacular in the budget.” A highly pro-industry budget is what BJP’s political opposition banked on to corner the government. It was as much frustrated as the industry and stock market. The latter seems to have guessed it well. The market was down in both pre and post-budget sessions.
(The author is a senior commentator on economic affairs. Views expressed are strictly personal.)