By Sanjay Thapa
Adverse headwinds are being faced in terms of weak global economic cues, Trump’s anti-outsourcing, and the fallout of the November 8th Demonetisation drive that makes the estimated 7.5 per cent GDP in 2017-18 a farce. A little succour has come about as initial steps have been taken towards bringing transparency in political party funding (black money) with the introduction of ‘Electoral Bonds.’
The aspiration for transparency
[su_quote]Electoral Bonds can be subscribed by donors as well as receivers, and it has no loopholes as it will redeemable within a short duration[/su_quote]
This was his response to the query on the transferability of such bonds, which will lead back to square one. It has also reduced the anonymous donation limit to Rs. 2000 from the earlier Rs. 20,000. These are the only takeaways that can be considered as initial steps towards bringing about transparency in political party funding.
Union Finance Minister Arun Jaitley arrives at Parliament to present the Union Budget | Photo Courtesy: The HinduThe budget makes concessions albeit marginal on the income tax by reducing the tax rate to 5 per cent from 10 per cent in the Rs 2.5 lakh to Rs 5 lakh slab. However, it does not in any way undo the enormous problems faced by the citizens subsequent to the demonetisation. In order to push towards a cashless economy, any cash transaction above Rs 3 lakh will invite a 100 per cent penalty. As the budget stipulates higher public expenditure or government spending, it has done little for stimulating private investments. It may be recalled – against the general speculation of a lowering of interest rates – the RBI had not made any rate changes subsequent to November 8 Demonetisation drive.
Revivals and arrivals – An economic surge
Affordable housing has been given a fillip in the budget with its classification as ‘infrastructure’ and a hiked allocation of Rs. 23,000 crores in the budget. The Real estate sector which has been hit hard by Demonetisation is also expected to see a revival in the coming days. Last year, the ‘Start-up and Stand-up India’ was given major focus. However, these slogans are forgotten. It is apparent that even though Modi was gung-ho about these schemes, the credit disbursements were nil. It is clear that to practice is more difficult than to preach.
[su_pullquote]The Real estate sector which has been hit hard by Demonetisation is also expected to see a revival in the coming days.[/su_pullquote]
Higher allocations were expected; to provide for raising the exemption to at least Rs 5 lakh per annum. However, given the fiscal consolidation compulsions of meeting the targeted 3.5 per cent for current fiscal and 3.2 per cent for 2017-18, it is indeed a tightrope walk on; Especially given the last quarter downturn in GDP due to demonetisation.
Last year, the Finance Minister had dished out goodies as he strived to be on the safer side of fiscal prudence. He gave hints of being pro-farmer, with respect to ‘rural vote-banks’. This time budget was rescheduled to arrive before the four assembly elections in four states. It was mired in a political battle with the Congress, demanding postponement of the budget till after the elections results. This time it is for the first time that the Railway budget has been combined with the main budget.
To conceal a few mishaps
Predicting the budget has been the 7.1 percent of advance GDP estimates by the CSO for the year 2016-17. Though normally the CSO includes data till November, this is the first time that the GDP estimate has excluded November. This could be to negate the negative impact of the November 8th demonetisation on the economy, which is sure to have a detrimental effect.
Given the sweet spot that India was in the global economy, FM Jaitley has strived to be on the positive side of the fiscal consolidation.
This is to meet the targeted fiscal deficit of 3.5 percent even after the last minute CPSE PSUs disinvestment drive conducted last week. Given the tumultous global slowdown headwinds, Jaitley has taken efforts towards fiscal prudence will also face an uphill task. This will follow an expected adverse impact of the demonetisation drive on the revenue buoyancy. To add to this, Crude oil prices would be back on an upward spiral in the coming months.
The main concerns to address
The budget, this time, is to acknowledge the poor and the agriculture, which has neglected for decades till now. This is despite growing farmer suicide as well as declining farm growth which is expected to kick back to 4.1 per cent in the coming year. GST continues to haunt the government even as its postponed till July 1st of this year.
[su_pullquote align=”right”]The budget, this time, is to acknowledge the poor and the agriculture, which has neglected for decades till now.[/su_pullquote]
A major concern in the budget has come in terms of Non Performing Assets, which continue to grow. Bank recapitalisation has been earmarked as per the 25:25:50 ratio. Bank capitalisation was expected to revamp the falling credit line to the manufacturing sector, and thus inject critical private investments.The Sensex has given an initial thumbs-up by closing in upwards.
On similar lines, the allocations for the social sector in schemes like MNREGA is claimed by the FM to have been high but the fact remains that the MNREGA allocations has been upwards from Rs. 40,000 crore previously. On the other side, the governments efforts to boost ‘Start-up India as well as ‘Make in India has also seen no major boost. The government had already announced the tax holidays for these sectors.
A major allocation was expected in the infrastructure sector particularly in terms of expanding public investments which have been the only saving grace in keeping up the growth in the economy.
The Rs. 21 lakh crore budget this time has done away with plan and non-plan expenditure. However, it leaves a lot in terms of addressing the jobless growth, particularly in the wake of Trumps stand to stop outsourcing and banning HIB visas.