Millennium Post

Budget not ambitious but pro-growth

To expect a government in the saddle of less than two months to come out with a vision document and a perfect book-keeping exercise to run the economy for the rest of the inaugural year is to ask for the moon, given the entrenched disabilities a high-cost economy like ours suffers from. Yet, the maiden budget presented in Parliament on Thursday by the Finance Minister  Arun Jaitley who wears several hats and a man Friday for the Bharatiya Janata Party (BJP), the feat turned out to be facile as his grasp on the nuts and bolt issues is second to none of the so-called experts and economists.  Even as his first budget contained several customary projects, programmes of the past and the ones he sets forth, the 2014-2015 Budget’s due emphasis on fiscal and growth impulse factors are refreshingly path- breaking to offer hope that the economy’s turnaround in the next couple of years is after all not that intractable as it had been in the past couple of years.

As fiscal deficit is fraught with adverse repercussions particularly hitting the common man by making the cost of living dear,  Jaitley conceded at the outset of his presentation of the Budget that fiscal prudence to him is of ‘paramount importance because of considerations of inter-generational equity’.  A ballooning fiscal deficit stores up troubles for posterity as it hikes the debt burden beyond bearing not only for the extant generation by crowding out private investment with the government pre-empting  and appropriating most of the borrowings for its own upkeep but also for the next generation which must perforce have to bear the interest burden.  Jaitley modestly claimed that the steps he unveiled in the Budget are only the beginning of a journey towards a sustained growth of seven-eight per cent or above within the next three-four years along with macro-economic stabilization that includes lower levels of inflation, lesser fiscal deficit and a manageable current account deficit. Rightly  Jaitley did lay due emphasis on the imperative that ‘we cannot leave behind a legacy of debt for our future generations. We cannot go on spending today which would be financed by taxation at future date’.

However, despite the compulsive need to generate more resources to fuel the economy, the budget has refrained from imposing penal taxes to extract every paisa from the hard-pressed people, trade and industry. What  Jaitley announced by way of tax incentives to ensure savings from the disposable income of all people  through raising the marginal taxpayers threshold, enhancing limit on housing loan qualifying for tax relief and hiking the limit under Sec 80C from Rs 1 lakh to Rs 1.5 lakh and also to manufacturing sector by way of investment allowance and to foreign portfolio investors on dividends received by Indian companies from their foreign subsidiaries at concessional rate of 15 per cent without any sunset date and some positive tinkering in direct tax statutes  would entail a massive revenue outgo of Rs 22,000 crore in a year. No finance minister would dare to bare so broadly when the finances of the economy are in dire straits. Yet  Jaitley has taken a calculated risk in generating feel-good factors by providing so many tax sops to people so that their incentive to save and stay invested for the economy would take deeper roots. Set against the largesse in the direct tax, the Finance Minister’s foray into netting revenues from indirect  taxes would yield  Rs 7,525 crore with some additionalities to revenue flowing from enlarging the services tax kitty on a few services announced in the budget. The point to ponder is that by sacrificing revenues to ramp up the growth impulses through incentives to earn and save,  Jaitley has demonstrated his penchant for pro-growth paradigm of development which alone ensures the welfare of all. This would all the more go smoothly if only efficient distributive machinery is in place to iron out income inequalities. The Government has the moral responsibility to ensure that those marginalised from the growth stream do not feel left high and dry.

Taking the tough challenge of reducing fiscal deficit to 4.1 per cent of the GDP in the current year, the legacy of the previous Finance Minister  P Chidambaram in his interim budget for 2014-2015 before the nation went to the polls,  Jaitley contended that ‘difficult, as it may appear, I have decided to accept this target as a challenge’.  Stating that one fails only when one stops trying,  Jaitley said that his roadmap for fiscal consolidation is a fiscal deficit of 3.6 per cent for the next year and three per cent for 2016-2017, while holding to the current year target of 4.1 per cent. Jaitley said despite the looming high oil import bill on account of adverse developments in Iraq as also the unpredictable monsoon back in home, the moderation in inflation based on wholesale price index still offers some respite. An important announcement in the budget pertains to the setting up of the Expenditure Management Commission, which would scan the various aspects of expenditure reforms to be undertaken by the government. Though several such Commissions in the past had been announced and some did solid work such as the Geethakrishnan Commission, Jaitley’s timeline that this commission will give its interim report within this financial year is a good augury that the government means business. Alongside, he also proposed to overhaul the subsidy regime, the holy cow that has been running amok wrecking the well-laid plans of the finance ministers of the past. Jaitley’s assertion that this would cover food and petroleum subsidies and make them more ‘targeted while providing full protection to marginalised’ and the weaker sections would, one hope, be undertaken with urgency.  Jaitley  hoped that the much-awaited goods and services tax (GST) subsuming multiple taxes into a single consumption tax would go a long way in streamlining the tax administration, precluding harassment of the business and resulting in higher revenue collection both for the Centre and the States, should be seized by all the States in the national interest. His open assurance that the Government would be more than fair in dealing with the States’ legitimate and due concern must prompt them to help the approval of the legislative scheme before long.
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