Every budget has a historical context. The one for 2017-18 came after the pain inflicted by demonetisation, which is expected to shave 0.5-1% off the growth rate. There was wide expectation that the budget would come with a feel good factor that would take away some of the pain of demonetisation. That has not happened.
On the other hand, the budget has scrupulously trodden the responsible path, kept a firm rein on the fiscal deficit and done nothing that might stoke inflation. Of course, Prime Minister Narendra Modi had pre-empted Union finance minister Arun Jaitley by announcing some goodies at the turn of the year (the budget speech mentions them) leaving that much less for him to dole out. Hence, Jaitley has carefully chosen and measured out the giveaways. He has, as is his wont, gone in for incremental progress and not dramatic assertiveness through a big bang approach.
For demonetisation to lead to some permanent good it is important to strike at the roots of corruption, the role of black money in elections. The budget has done this by sharply reducing the ceiling on individual unaccounted donations (these by their very nature are in cash) from Rs 20,000 to Rs 2,000. This is good as far as it goes but not good enough. What prevents a political party from getting around the same amount of unaccounted donations by claiming a quantum jump in the number of donations? Why has no ceiling been fixed (say 2% of total inflow) on receiving unaccounted donations? So the budget does not contain a final answer as to whether the government is serious about curbing the role of black money.
The traditional critique of India’s high growth phase is to ask: To what purpose is it? Despite lower income levels, neighbouring countries like Nepal and Bangladesh have forged ahead of India in terms of the quality of people’s lives as reflected in human development indicators. With the growth rate becoming a bit subdued, it is even more important to ask what the budget has done to help bump up India’s poor human development indicators.
This directs us towards social sector spending. Allocation for the rural employment guarantee programme is up by a hefty 25%, the health budget is up 24%, but allocation for the mid-day meal is up by a mere 3% and zero or negligible additional allocation for the drinking water programme and pensions for the poor. The positive view is this is a mixed picture. The negative view is that, considering the low share of the social sector in overall government expenditure, don’t expect the budget to seriously boost the effort to improve human development indicators.
One reason for the disconnect between income growth and quality of life is inequality of income. The GDP has been growing fast but the poor haven’t got to see much of it. The budget does take a minuscule step towards redistribution of income between the not-so better-off and others. If your income is up to Rs 50 lakh then you gain by way of paying less tax. But if you are in the Rs 50 lakh-Rs 1 crore bracket, then you are a loser. So far so good but if your income is over Rs 1 crore, then also you gain. Is there a method in this?
Where the budget does strike a blow in favour of the poor is by making the environment for low-cost housing so much better. A critical way in which house buyers suffer is by apartments being sold based on built up area and not carpet area. By defining the sector in terms of carpet area, the government has expanded the universe of low-cost housing by 30%. The sector is being given infrastructure status, thus lowering the interest rate that developers of such housing have to pay for bank loans. The initial tax holiday for builders in low-cost housing has been raised from three to five years. Plus, the allocation under the Pradhan Mantri Awas Yojana has been hiked by a sharp 50%.
It is now vital for all three layers of government to take this forward and make it worthwhile for people to move into modern pucca houses by providing the necessary infrastructure — electricity, roads, drinking water, sewerage and broadband Internet. The smart city programme should pay special heed to creating a positive environment for low-cost housing development.
There are enough successful builders focusing on low-cost housing to establish it as a viable sector for private capital to go into. Since the defining limit for low-cost housing is twice for all areas except the municipal limits of India’s four metros, a revolution can now happen in urban and peri-urban India. If this came about then a spin-off benefit would be new jobs, created by the accompanying construction boom.
We began by noting that Jaitley has been careful to keep the central government’s fiscal deficit under control. But the catch is that it continues to exploit the cess and surcharge route to raise more tax revenue, even as it lowers the nominal income tax rate, thus depriving the state governments of their due share of tax revenue. This goes poorly with the central government’s declared aim of taking forward fiscal federalism under which it expects the states to do their bit for the social sector.
Subir Roy is a financial journalist and has also worked in the SBI
The views expressed are personal