Photo: AFP
Photo: AFP

A budget for continuity with change

Overall, this budget appears to be growth-oriented, inclusive, and at the same time have a long term focus

In his maiden budget presentation, the finance minister has tried to balance growth and inclusive development. While continuing with most of the social sector programmes of the previous government (apart from many “100" crore new ones), this budget tries to revive the economy through incentivizing the manufacturing sector. At the same time, it also continues expenditure rationalization through subsidy reduction and rationalization of social sector schemes which was begun last year itself. Together with this, emphasis on “targeted" subsidy regime with the use of IT is sure to reduce the burden on the exchequer as well as achieve the subsidy objective.

On the growth front, sticking to the fiscal deficit target of 4.1% set in the interim budget is something that was least expected. While realization of such a target seems to be quite difficult, achieving it could help growth. However, incentives for enhancing savings are the most important policy measure to help growth recovery. Measures such as increase in PPF limits by 50,000 could help increase household financial savings. Together with this, public sector savings through reduction in deficits could help recover the overall investments. There are sector specific growth-oriented measures for the manufacturing sector through rationalization and reduction of customs and excise duties.

However, both in this budget as well as in the railway budget, there seems to be too much reliance on the public-private partnership (PPP) model, which could create some pessimism in terms of achieving objectives. While there are some PPP success stories, there are an equal number of failures as well. Such mixed experiences are not limited to India alone. The problems get accentuated when we have weak implementation agencies.

A look at the expected revenue receipts suggests some apprehension. With nominal GDP growth expected to be 13.4% for the current fiscal year—not very different from the previous years—the total tax revenue is projected to increase by 2.2 trillion. That’s a growth of 19% compared with 11% growth in the previous year and this is despite reduction in the income tax base (through an increase in the exemption limit and the PPF limit). The targets are high for collections from both income as well as corporation tax. The most crucial and challenging issue on the revenue side, though, is the disinvestment target set at 56,925 crore, which is a growth of over 120%. Any slack in achieving this will disturb the overall fiscal math.

All along, there were large expectations from the new government to come up with policies to contain inflation (especially food). The Economic Survey also talks about those policies. As some of us argued, in the management of food as well as its prices, state governments are also equally responsible. This is made clear in the budget with no direct measures that could contain food inflation in the short to medium term.

The reduction in the indirect taxes might contain the manufacturing inflation to some extent but there are hardly any measures for addressing food inflation. Although, policies for encouraging food processing industries and creating infrastructure for linking farms to urban markets should help contain volatility in food inflation in the long run. This means we will experience high food inflation for some more time. The El Nino could aggravate it further.

Overall, this budget appears to be growth-oriented, inclusive, and at the same time have a long term focus. However, comparing this with the policies that have been adopted by the Union government since January this year as well as in the interim budget, one could be tempted to conclude that this budget is more of “continuity with change".

N.R. Bhanumurthy is professor at National Institute of Public Finance and Policy.

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