BackArun Jaitley provides a bold new direction
Jaitley has shown that he is not beholden to any fiscal dogma and has his attention focused sharply on raising growth and investment
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Finance minister Arun Jaitley has shown that he is not beholden to any fiscal dogma and has his attention focused sharply on raising growth and investment. As such, he has opted for a more moderate glide path for meeting the medium term fiscal deficit goal of 3% of gross domestic product (GDP). This will now be achieved over three instead of two years as earlier targeted. Accordingly, the fiscal deficit next year is pegged at 3.9%, giving the government greater fiscal space to make the much needed public investments in infrastructure and agriculture. But I would have been even happier, however, if the finance minister had chosen to reduce the revenue deficit more sharply than bringing it down only to 2.8% of the GDP in FY16.
This budget is replete with forward-looking and reformist measures and has not succumbed to populist pressures. The Narendra Modi-Jaitley team has done well to make this a growth and investment oriented budget while at the same time retaining and indeed increasing outlays on social welfare measures as reflected in the highest ever allocation of ₹ 34,699 crore for the Mahatma Gandhi National Rural Employment Guarantee Act.
The budget represents one of the boldest and most comprehensive attempts at giving the required push to prime minister’s Make In India programme. It does this in several ways.
First, its emphasis on infrastructure investment by increasing budgetary allocation by ₹ 70,000 crore. This is buttressed by allocating ₹ 20,000 crore as seed capital for National Investment and Infrastructure Fund and issuing of tax-free infrastructure bonds for rail, road and irrigation.
Second, the budget’s focus on improving the business environment especially for the micro, small and medium enterprises (MSME) is laudable. This includes the setting up of the MUDRA bank, with seed capital of ₹ 20,000 crore and a ₹ 3,000 crore credit guarantee corpus for improving access to formal financing for the 57 million MSMEs. In addition, the finance minister announced the launching of an e-biz portal which integrates 14 regulatory permissions at one source. Further, an expert committee is being set up to suggest a draft legislation for replacing multiple prior permissions with a pre-existing regulatory mechanism.
Third, the finance minister accepted my suggestion to give the workers in smaller organizations the option to move out of the Employees’ Provident Fund to New Pension schemes and to choose medical insurance in place of compulsorily registering under Employees’ State Insurance. The importance of these reforms in formalizing the informal sector and eliminating the unacceptable dualism that currently characterizes Indian industry and will help expand manufacturing capacities in the country.
Fourth, the budget has also given 1 April 2016 as the fixed date for the inception of the goods and service tax (GST). It has raised service tax to 14% in an attempt to bring it in line with the likely GST rate. The creation of a unified pan-India market is also a critical requirement for promoting manufacturing. Thus, the budget has done a remarkable job in putting in place the necessary conditions for promoting entrepreneurship and industry. This is a Make in India budget.
There are several other reform suggestions tucked away in the speech. These include the move towards establishing a holding company for public sector banks; setting up a Public Debt Management Agency and taking the function out of the Reserve Bank of India (RBI); moving towards a monetary policy committee for bringing RBI and the government in sync on monetary reduction of tax rate on royalty payments from 25 to 10% to encourage younger entrepreneurs who are looking for new technology; and doing away with the obnoxious wealth tax whose administration costs were surely larger than the measly ₹ 1,008 crore it garnered as revenues.
I wish that the finance minister had included a clearer statement on doing away with retrospective taxation and spelled out the way forward for shifting both fertilizer and food subsidies to direct cash transfers. That would have given the budget a place in India’s fiscal history. He would have been hailed as one who took on the holiest of cows in the interest of putting India on sustainable path of rapid and inclusive growth by reducing government intervention in agriculture and bringing about a second agriculture revolution.
Rajiv Kumar is a senior fellow at the Centre for Policy Research, New Delhi.
Comments are welcome at views@livemint.com
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