Not The Make-Or-Break Budget The Country Needed

So, finally, the country did not get the make-or-break budget that it sorely needed. This is not to say that Finance Minister Arun Jaitley’s third budget isn’t a good one. Certainly, it has a lot of good points. But it stopped short of being a great budget.

At first sight, the navaratna budget (nine distinct pillars, nine categories of tax proposals) is a comprehensive budget, touching upon every section of the economy. Agriculture. Check. Small businesses. Check. Infrastructure. Check. Middle Classes. Check. Employment generation. Check.

It’s hard, however, to avoid the buts.

Great that agriculture and the rural economy have got a lot of attention, as was expected. Applause particularly for the proposal to ensure that farmers across the country get the benefit of minimum support price (MSP). With 80 percent of procurement by the government happening in only five states, the MSP regime was benefiting just a small section of farmers. Jaitley has said other states will be encouraged to take up decentralised procurement, there will be an online procurement and there will be procurement of pulses as well.

The government needs to deliver on this; it needs to spread awareness about these benefits. Many small farmers in the interiors of Bihar, for example, are just not aware of either procurement prices or procurement centres.

Good news is that the target for rural credit has been raised and that there’s a bigger allocation for interest subvention. The second is obviously to address the issue of growing farmers’ suicides, but will this help? Studies have shown that much of the rural credit is cornered by large farmers as they have access to the formal banking system. The small and marginal farmers and tenant farmers don’t and so can’t avail of the interest subvention scheme as well. The government needs to take steps to correct this skew.

There’s going to be a huge boost to infrastructure investment, driven by roads and railways, both of which will boost employment, as well as a planned boost to public transport. But the increased expenditure (roads and railways together get Rs 2,18,000 crore) doesn’t square with the capital expenditure numbers in the budget. The capital expenditure is budgeted at Rs 2,37,718 crore in 2016-17, which is the same as the revised estimates of 2015-16 and 1.5 percent lower than the 2015-16 budget estimates of Rs 2,41,430 crore.

There is a lot about social sector spending. There’s going to be a new health protection scheme, more Navodaya Vidyalayas, nurturing 20 public and private higher education institutions to become world-class, a digital depository for school and college leaving certificates. But seriously, is providing an enabling regulatory architecture to 20 educational institutions to emerge as world-class teaching and research institutions the right way to encourage quality? Or setting up a Higher Education Financing Agency to finance infrastructure improvement in top institutions?

Money will not be a problem in higher education if the government stops over-interference and the country as a whole gets out of this profit-in-education-is-bad mindset. Why not just free up the higher education sector; that will also be in line with the minimum government slogan?

The financial sector reforms package is, indeed, comprehensive and is an important step to put the economy on a stronger footing. The taxation proposals are focused on making the tax regime simpler and putting more money in the hands of the middle class. The approach to tackling black money also appears pragmatic at first glance.

A big positive announcement is that the government will give legal status to Aadhaar, something that was important to push the JAM trilogy (Jan Dhan, Aadhaar and Mobile) in order to make the delivery of subsidies more efficient. Another significant step taken on subsidies is the push for POS machines (point of sale devices to authenticate the identity of ration card owners) in fair price shops. There’s going to be a pilot project on direct benefit transfer for fertilisers, again something noteworthy.

So what would have made it a great budget? If it had done some things and not done some others.

If it had pushed for a central GST (combining excise and service tax). Given the continued uncertainty on the GST Bill, this would have been one way to unilaterally simplify the tax system.

If it had moved to remove the amendment on retrospective taxation that the earlier government brought in. Jaitley has said that his government will not resort to such amendments and hoped that cases currently in courts will soon reach their logical conclusion. But the point is that the current amendment has led to situations where the taxman is able to harass tax payers. Why not move to rescind that amendment?

If it had been bolder on privatisation of public sector companies. There is mention of strategic sales of public sector enterprises, but no roadmap. Instead there is talk of renaming the department of disinvestment as Department of Investment and Public Asset Management (DIPAM) to look into issues like capital restructuring, dividend, bonus shares etc. This appears to be pussyfooting around the privatization issue. Birth of DIPAM raises a question - what will the department of public enterprises then do?

If it had resisted the temptation to levy new taxes. There is now krishi kalyan cess on all taxable services, another cess on certain cars, and a higher rate of clean energy cess.