I have always been a little wary about the budget. It generates unnecessary hype, leading expectations to reach a crescendo, invariably followed by disappointment. As I write this, I am looking at the stock markets ticker gyrating up and down on my television — “like a drunken sailor” — as a commentator aptly described it.
Nevertheless, I have been looking forward to this particular budget, considering a lot is riding on it. I expected a broad and stable roadmap of intent for the next five years. To a large extent, the Union finance minister has been able to do that — the decisions to reduce corporate tax and phase out exemptions over a four-year period is a case in point, and I hope he is able to walk the talk.
I am sure this was not an easy budget to draft, given the high burden of expectations, the unpredictable global environment, and the tepid pace of domestic recovery. The minister’s fiscal space for budgetary allocation had also come down, since the state’s share of central taxes has gone up from 32% to 42%, which will give the states more flexibility for their own development.
Despite these constraints, Jaitley has done a commendable job. He has brought back the primacy of growth without being excessively profligate. This budget has taken the first important steps for creating a social security net by incentivising pension related savings.
Lower-middle and middle class salaried households in the organised sector will also have some more money to balance their budgets through the increased medical reimbursements and transport allowance.
For employees below a certain threshold of monthly income, their contribution to EPF are now optional, without affecting or reducing the employer’s contribution — this is significant, since it will enhance the take-home salaries of many families.
I am also heartened to see the lip support for the manufacturing sector being converted to some tangibles. Prime Minister Narendra Modi has long held the view that manufacturing sets the tone for the overall business cycle, and this sector’s health affects the country’s socio-economic fabric. I am relieved that this philosophy now gets encoded in the most important financial document of the Centre.
The crack down on black money, the measures to monetise gold holdings and plans to incentivise the shift from a cash-driven economy to a card driven one are sound moves. It is very difficult to track the Indian economy because of the huge underbelly, and measures like these should in time, increase the tax-GDP ratio, which is abysmal for a continental size economy like India.
I know some people will say that coal prices will go up because of the clean energy cess, but somebody should have to foot the bill for sustainable development. It is a small price to pay for a cleaner, healthier and greener country.
The roadmap and strong commitment to GST comes as a huge relief; for too many years, Indian industry — and by this corollary, Indian consumers — have been at the receiving end of an unstable and inefficient tax system that made the country unproductive. Similarly, the clarity in respect of indirect transfer taxation, dividends paid by offshore companies and no MAT applicability for FIIs/FPIs should boost investor confidence.
While meeting the fiscal deficit target should give more confidence to the outside world about the India story, I have always believed that the quality of the fiscal deficit is more significant than the quantity. India as a country will be much better off if most of the extra government borrowings are funnelled into capital expenditure, instead of being used to pay subsidies and salaries of government servants.
Fortunately, Jaitley provides a strong impetus to infrastructure, especially in deficit areas like roads, housing and ports; he has managed to do this by giving himself a little more leeway on the three-year fiscal deficit roadmap. The `70,000 crore additional outlay for infrastructure is a big plus, though I am concerned that the non-plan expenditure for next year is also high, which may force the government to go in for borrowing later in the year.
The higher outlays on infrastructure should significantly aid construction and job creation, provided the land acquisition roadblocks are suitably removed. Of course, while the strong support to roads certainly carry a welcome Vajpayeesque touch, there is quite clearly a need to move beyond construction into traffic management and e-tolling, and this is an area where I expect increasing central attention and detailing in the coming months.
In terms of injecting policy clarity, Jaitley has made progress along several directions. Attempts have been made to create a mechanism for transparent and quick resolution of tax disputes; there is promise of a long-awaited bankruptcy law, and the reassurance on GAAR is a big positive.
I was glad to see the minister indicating the government’s intention to bite the bullet and exit businesses that are a drain on the exchequer and flag-off strategic sale of loss-making PSUs. This budget has many good themes, but in the end, a budget exercise is all about optimally using boundary conditions.
I have seen over the years that despite noble intentions, budgets in India have lost much of their credibility and sheen because promises have not been kept and targets have gone awry.
Lord Buddha once said: “An idea that is developed and put into action is more important than an idea that exists only as an idea.” The annual budget has traditionally been a source of many great ideas which have existed just as ideas.
Let us hope that with Union Budget 2015, great ideas morph into workable action points. Let us pray that a new set of best practices get institutionalised, and the budget documents once again regain their sacrosanct place as the bible of economic decision-making.
Pawan Munjal is vice-chairman, MD and CEO of Hero MotoCorp
The views expressed by the author are personal