Arun Jaitley’s first Union budget: A quick analysis
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Here’s what finance minister Arun Jaitley was expected to do in the Union Budget: revive growth, rein in the fiscal deficit, improve investor sentiment, and, somehow, meet the expectations that started building up in May once it was clear that the Bharatiya Janata Party (BJP) would form the next government with a clear majority.
Jaitley’s budget is high on specifics (and in that aspect, and that alone, it is reminiscent of a 1980s budget) and lacks a singular vision, but it does present some broad themes (caveat: the small print still needs to be studied)
Here are some:
1.Start-ups/enterprise: It is evident that the budget believes that creating an environment conducive to start-ups will boost agriculture/manufacturing/software products; create jobs; and revive the economy. It’s hard to argue with that logic
2.Doing business in India: Even while reiterating the supremacy of the sovereign, Jaitley said his government would avoid retrospective taxation, although he said existing disputes arising from this would take their own course (which means the Vodafone issue remains unresolved, and in arbitration). The budget clarified some transfer pricing principles, and reaffirmed this government’s commitment to the goods and services tax and the direct taxes code, although it would have been good to have some timeframe on their implementation. Moving more permissions online (through the government’s much touted ebiz portal), and some changes in FDI rules (insurance, for instance) could help as well.
3.Banking: Stopping short of ceding government control of state-owned banks, the budget still promises to consolidate these banks (which is a huge step forward). It also says banks will have to raise money from the market (good from the macro perspective), has created more debt recovery tribunals, and formalizes recent recommendations with regard to licensing various types of banks
4.Infrastructure: There are specifics for roads, ports, airlines, and energy (including non-conventional energy). Most importantly, the relaxation of cash reserve ratio (CRR) and statutory lending norms (SLR) norms for long-term money from banks should help the cause of infrastructure financing, and come as a shot in the arm for overleveraged project developers.
5.Structural adjustments: The budget keeps the fiscal deficit at 4.1%, the number put forth in the interim budget, and Jaitley’s intent in keeping this constant is commendable (although the math of how he will achieve it is hazy, and clearly premised on a huge jump in tax revenue). Even more commendable is the 3% target for next year. The numbers indicate that the new finance minister is betting on growth – it is impossible for these numbers to be achieved, without a 5.5-6% growth in GDP this year and a near-7% growth in 2015-16
6.Real estate: Allowing the creation of real estate investment trusts (or REITs) is a good idea and should increase the depth of the real estate market. In consonance with the marginal sop to people who avail home loans, this is a significant positive for a sector that hasn’t had much good news in the past few years.
7.Personal income tax: There are no radical changes, but small sops that should make at least some people happy.
At first sight, the budget does try to get India’s economy onto the growth path—towards touching the 8-%-plus growth rate it saw in the mid- 2000s in far more conducive global macro-economic environment.