Budgets are always political documents and they can hardly be otherwise. They are, after all, presented by the ruling dispensation which has been elected to power. So, to argue that a Budget should stay away from politics and focus only on the economy, in a narrow and technocratic sense, is being politically naïve and also disturbing from the democratic point of view.
Finance Ministers often have to walk a tightrope while presenting Budgets and carefully balance the interests of various sections of the population and their conflicting demands. The Minister also has to make a careful assessment about which sections deserve favourable treatment, which segments can be left alone and which ones can be asked to pay more. These decisions are mostly political, though the perceived conflict between politics and economics is largely exaggerated.
The fourth Budget of the NDA government was presented by Finance Minister Arun Jaitley under the shadow of the November 8 demonetisation decision. That the ‘D’ word found little mention in the Budget speech surprised many. Jaitley rather blithely mentioned the positive outcomes of demonetisation in passing but was remarkably shy in giving any details. There was little in the Budget to alleviate the pain of the informal sector workers who bore the brunt of the note ban.
Easing the tax burden
What the Finance Minister did focus on was to give tax concessions to small and medium enterprises (MSMEs), as it is this sector that was largely impacted by the note ban. So, now, firms with an annual turnover of less than ₹50 crore will have to pay tax of only 25 per cent. This is only fair as, in the past, these firms were paying higher taxes than larger firms (at 30 per cent) as the latter, due to all the exemptions and sops, were effectively paying only 25 per cent tax. So this proposal makes sense from the equity viewpoint too.
Also, the Government has realised that, despite its ambitious ‘Make in India’ plan — Prime Minister Narendra Modi did spend a good deal of time in the first two years of his stint cajoling global CEOs to invest in India — large private investments are unlikely to take off any time soon and, for job creation, it will have to rely on the enterprise of the small and medium firms.
The Government in this Budget has also tried hard to shed its ‘suit-boot sarkar’ image. So the tax outgo of the lowest income slab has been halved and those earning between ₹50 lakh and ₹1 crore will have to pay a surcharge of 10 per cent.
Pro-poor, pro-rural
The allocation for the rural jobs scheme MGNREGS has been pegged at ₹48,000 crore, the highest ever, and this spending has been linked with outcomes for asset creation on the ground. The government has allocated ₹1,87,223 crore for the rural population, 24 per cent higher than last time, with a focus on rural sanitation and electrification.
Welcoming the recent government initiatives on eNAM and irrigation, agricultural economist Ashok Gulati notes that food and fertiliser subsidies remain untouched in the Budget.
Social sector spending remains anaemic. Though there is higher allocation for health, it is still only 2.2 per cent of the GDP, much less than the 5-6 per cent demanded by health activists.
Economic stimulus
The biggest plus in the Budget is the 25 per cent increase in capital spending and increase in transfer to the States. As the economy was stuttering even before the demonetisation sledgehammer, the Finance Minister thought it wise to provide a dose of stimulus to the economy. As economist Pulapre Balakrishnan argues in a recent column, “It seems there is nothing like a slowing economy to concentrate the mind of the political party in a democracy”.
The sharp jump in the allocation to the Pradhan Mantri Grameen Awas Yojana from ₹15,000 crore to ₹23,000 crore is another important pro-poor proposal which will boost affordable housing and create more jobs related to the sector.
The other big idea is the reduction in the cap of anonymous individual contributions to political parties to ₹2,000 from ₹20,000. The proposal on electoral bonds too seems novel. Whether these initiatives will cleanse politics of corruption remains to be seen, especially given how rigged the system is towards generating black money for fighting elections.
Fiscal deficit
On the fisc, the Finance Minister has earned plaudits for keeping the fiscal deficit at 3.2 per cent, though the promise was to reduce it to 3 per cent. Economist C Rangarajan and has commended Jaitley on this. Even former Finance Minister P Chidambaram has appreciated the Finance Minister’s ‘moderation’ for not doing any thing reckless to counter the demonetisation impact, despite calling the Budget ‘a damp squib’.
The Budget is again silent on two major issues — universal basic income, which has been generating a lot of debate, and bank recapitalisation.
So people looking for a ‘Big Bang’ Budget would have been disappointed, as this exercise has no one, overarching idea. But Jaitley has done his best to balance the interests and pressures of every section of the population. That the markets gave the Budget a 450-point salute is proof that no proposal was perceived to be inimical to the interests of market players.
So, after riding to power on the massive support of corporates, Modi seems to have realised that it makes more political sense to take care of his rural brethren. To quote Balakrishnan, “Politics triumphs over ideology in this Budget and, for a change, that is welcome”.