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Business News/ Opinion / Online-views/  Budget 2017: The heart is in the right place
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Budget 2017: The heart is in the right place

For the first time in recent history, the budget hints at rationalization in the delivery system of programmes meant for the rural poor

The budget rightly focuses on the three key pillars of infrastructure development, poverty alleviation and strengthening the rural economy. Photo: BloombergPremium
The budget rightly focuses on the three key pillars of infrastructure development, poverty alleviation and strengthening the rural economy. Photo: Bloomberg

The key feature of this year’s budget is the recognition that there are several game changers in the economy already playing out. The goods and service tax (GST) juggernaut seems to be on course. And the recent initiative in terms of demonetisation of high-value notes has just been parked on the side. In the circumstances, the budget’s focus seems to be not to rock the boat any more till the long-term impact of these initiatives play out fully.

The finance minister has, therefore, utilized this intervening period to push the long-term structural reform measures that he had initiated over the past two budgets.

To be very sure, this budget is not a policy document for the near term. It has been designed to make the country ready for the day when its population is fully in the tax net, its citizens pay their taxes fair and square and businesses are unencumbered of the effects of inspector raj.

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The budget rightly focuses on the three key pillars of infrastructure development, poverty alleviation and strengthening the rural economy. If you see closely, there is a common thread running through these focus area: public finances are being routed into initiatives which provide a long-term, sustainable base for strong economic growth.

The budget carefully avoids a populist stance, but the emphasis on direct poverty alleviation is substantial. For the first time in recent history, the budget hints at rationalization in the delivery system of programmes meant for the rural poor. In line with the accountability paradigm introduced in other sectors, the budget sets a defined target, to bring 10 million households out of poverty and to make 50,000 gram panchayats poverty-free by 2019. This is a welcome change in the government’s approach: instead of demonstrating its commitment to poverty alleviation through year-on-year hikes in allocation and multiplicity of programmes, this budget sets a numerical target for the outcome.

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Putting higher incomes in the hands of the rural population should be good news for the rest of the economy, too, which is built around rural prosperity. The higher allocation to the flagship MGNREGA programme, to rural electrification and rural sanitation along with a determined nudge to increase credit to agriculture, dairy processing and weather-proofing agriculture through a higher coverage of crop insurance are all long-term positives in a fundamentally structural sense. A pointed, time-bound effort to raise rural incomes, modernize agriculture and make farmers truly self-reliant will have a multiplier effect on rural incomes and in the short term, increase rural consumer spending.

Cut from the same cloth is the budget’s emphasis on public infrastructure creation, such as roads, railways and waterways. It will be immediately obvious that there was a long-term vision in accommodating the rail budget within the main budget. This gives planners a consolidated view of the multimodal logistics and transport infrastructure.

The spillover effects of public investment in transport infrastructure development have, globally, been shown to have accelerated spillover effects on income generation and economic activity. There is a specific mention of coastal connectivity roads, connecting major and minor ports to the hinterland in the most cost- and time effective manner.

The underlying emphasis, it should be obvious, is getting economic activity back on track in a manner which facilitates job creation. These jobs will be at various skill sets and distributed geographically. To my mind, skills will be created along the axes of economic activity, in a virtuous cycle, which should at some point not be dependent on government subsidies and doles.

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The last point on tax reforms is, perhaps, an extension of the government’s world view of targeting outcomes by creating the right enabling conditions. The finance minister has boldly cut to half the tax rate for the entry slab for income tax payers: from the earlier 10% to 5%. This is a perhaps a game changer in expanding the tax base and getting the public aligned towards tax compliance.

It becomes clear that the finance minister is not targeting sections, segments and corners of the economic landscape. This budget shows the government is thinking through the linkages in economic activity, trying to extract efficiencies in every rupee being spent and ensuring that the government itself should not be getting into people’s hair.

Manisha Girotra is chief executive, Moelis & Co.

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Published: 02 Feb 2017, 01:14 AM IST
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