For Budget 2017, the challenge for the policymakers was to continue on the path of macroeconomic stability but try and move to a higher growth trajectory. Expectedly, finance minister Arun Jaitley has also identified the global trend towards protectionism as one of the major challenges for emerging economies such as India. While macroeconomic fundamentals have remained strong during the past year, investments and private consumption have suffered.
It was a Hobson’s choice whether to select short term policies of entitlement or to engage more actively on policies of entrepreneurship which have short term costs but more enduring benefits. Jaitley chose to keep the faith in the existing policies and a put greater focus on implementation.
The budget is based on nine themes and focused on rural empowerment, growth and enhancing the infrastructural needs. Overall, spending on the rural economy is expected to go up by 24% in FY18. This focus is clearly welcome and can go a long way in alleviating the income and social concerns in those areas.
It is heartening to see that Jaitley has decided to continue on the path of fiscal prudence, by keeping the fiscal deficit target at 3.2% for FY18, well within the range recommended by the Fiscal Responsibility and Budget Management Act review committee. I believe that the quality of spending is also important hence a greater outlay towards capital expenditure is welcome.
The intent to become a global electronics hub is a step in the right direction and will have positive impact that would be realised over the coming years. Given that import of electronics has been one of India’s major import categories, creating domestic capability will not only bring down costs but also boost the Make in India scheme. I am also glad to see that cyber security has been recognised as a key focus area with the setting up on an emergency response team.
Further, the rollout of the BHIM app and digital payment for key point of sales including municipal corporations, fertiliser depots etc will ensure that this digital revolution is an inclusive one. Positive steps have also been taken in reduction of red tape that can potentially lead to a friendlier regime for foreign investors.
Measures to promote digital economy and curb cash transaction over Rs 3 lakh should help improve the tax-to-GDP ratio, although it would have been good to see additional steps to widen the tax base.
The proposal to reduce the tax rate from 30 to 25% for companies having turnover of less than Rs 50 crore in the previous year would benefit about 96% of the MSME companies that had been hit by demonetisation. But the same benefit has not been extended to partnership firms.
Capital markets will also benefit after Jaitley cleared the air on taxability of foreign portfolio investors on indirect transfer and did not make any substantial changes to the capital gains tax regime. Reduced tax of 5% on interest income of foreign currency borrowings and Masala Bonds up to 2020 will facilitate foreign funding at the lower cost and boost growth.
Jaitley has not introduced newer schemes but has qualitatively focused on improving the policy framework for continued growth-oriented reforms. The key would be to monitor time bound and effective implementation.
N Venkatram, Managing Partner and CEO, Deloitte India