It’s interesting to see how a Budget that focuses on the rural and social sectors gets dubbed as being ‘political’, whereas one that focuses on tax breaks for the industry is seen as being ‘pragmatic’, ‘bold’ or even ‘visionary’.
During a panel discussion on television immediately after the Finance Minister’s Budget speech, the panelists were unanimous in calling it a ‘political’ budget. When someone asked what the Budget had for the corporate sector, one of the panelists, Meghnad Desai, waved his hands dismissively saying, “Who cares about the corporate sector?” This was reminiscent of the famous remark by late CPI leader AB Bardhan, when he said that the markets could go to hell, when they tanked after the UPA’s unexpected victory in the 2004 elections!
That Finance Minister Arun Jaitley was going to focus on the farm sector in this Budget was a foregone conclusion. But what really surprised everyone was the government sticking with the fiscal deficit consolidation path of 3.9 per cent for this fiscal and bringing it down to 3.5 per cent in 2016-17. This must surely gladden the hearts of the rating agencies, which were relentless in their warnings to the government on this front.
Where will the funds come from?
But now the trickier question is, given the government’s enhanced spending on rural and social sectors, where will it find the money for it? The government seems to be banking on three factors — continuing low crude oil prices, buoyancy in indirect tax collections and increased mop-up from PSU disinvestments.
The government is banking on indirect tax collections with the target for next fiscal going up by 11 per cent. Despite the softening in global oil prices, the government has hiked the excise duty on several occasions this fiscal and that is unlikely to change. Also, the government is banking on the disinvestment target of ₹56,500 crore — ₹36,000 crore from stake sale and ₹20,500 crore from strategic sales.
Now, this seems to be a big gamble on the part of the government, given the volatility in the stock markets and considering the fact that it could mop up only less than half of the ambitious divestment target of ₹69,500 crore set for this fiscal.
The proposals for taxing EPF withdrawals have, predictably, come under fire. Though the government has said that only salaried people in the very top bracket will be impacted, it is still a blow to the salaried class, with unions calling it a case of ‘double taxation’. But my guess is the last word on this issue is not out and the government may go in for a roll back, at least partially.
Rate cut ahead?
The farm sector has seen some pretty important announcements — increase in rural development spending by almost 11 per cent, increased allocations for agri credit and irrigation, a hike in MGNREGA to ₹38,500 crore, again a near 11 per cent hike, giving fertiliser subsidy through DBT, and 100 per cent FDI in the food processing sector.
Some have argued that the hike in MGNREGA must be seen as a percentage of the GDP and that is lower than previous years; still, given how unenthusiastic the NDA was about this scheme when it came to power almost two years ago, the hike seems significant.
So, by sticking to the fiscal consolidation path, Jaitley has deftly thrown the ball in RBI Governor Raghuram Rajan’s court, and one newspaper headline said as much. Now, will the Governor oblige with a rate cut is the crucial question on everyone’s mind.