Marked by Caution, Budget 2016 Lacks Imaginative Initiatives

For three successive times, the Modi regime has failed to take bold economic initiatives, writes Gautam Mukherjee.

Where are the second generation structural reforms India and its foreign investors have been waiting for the last 25 years? Where is the massive push to revive rural India? The rural sector needs at least Rs 300 lakh crore in direct development funds right here, right now -- if words like ‘transformational’ can be applied to it.

There is Rs 87,765 crores allocated to ‘rural development’, but this is already part of the ‘infrastructure-related figure’ in this budget. The Rs 2.87 lakh crore announced for gram panchayats and municipalities shows some intent.

The finance minister may well claim an increase in the GDP from 6.3 per cent to 7.6 per cent, but most of this has come from lower petroleum prices. Internally, not much can be attributed to the efforts of the NDA government for India’s growth in the last 21 months. It is still in dire need of a set of bold initiatives. Alas, this budget, like the two before, doesn’t offer much.

Infra Allocation to Yield Jobs

This budget can best be described as a compendium of detail and petty husbanding of resources, a fiddle-faddle, a tinkering.

Nobody in the Finance Ministry has thought it fit to attempt the make-or-break budget called for. There is hardly anything substantive in it to make any section particularly happy, with the sole exception of a healthy allocation of Rs 2.21 lakh crore, all to be spent this year on infrastructure.

This, of course, includes highways, rural-roads and the railways. But still, it is likely to yield new jobs and fine long-term economic results.

Almost everything else, including the unproductive, if humanitarian, dole of the highest-ever allocation for MNREGA (Rs 38,500 crore), is not going to do much.

Is Budgetary Allocation for Farm Sector Enough?

All over, the budget speech, one can see the finance minister’s ambition emanating in trickles, when a flood of resources and bold action is called for.

The priority ostensibly given to the rural sector is not accompanied by structural policy changes that could have brought in a surge of badly needed foreign investment.

Instead, paltry sums are allocated to try and deal with 50 per cent the population in crisis after consecutive years of drought and flood. There is just Rs 35,984 crore allocated for agriculture, and a target of upping agricultural credit from Rs 8.5 lakh crore to Rs 9 lakh crore. There is Rs 60,000 crore for recharging ground water, and even less for irrigation. Another miniscule Rs 5,500 crore has been allocated for the Fasal Bima Yojana. A token Rs 412 crore has been placed towards encouraging organic farming.

Will Promises Be Fulfilled?

• The budget doesn’t bring good news for any particular section except for an allocation of Rs 2.21 lakh crore to be spent on infrastructure.
  
• Highest-ever allocation for MNREGA, Rs 38,500 crore is likely to be unproductive and will largely by unfruitful.
  
• Priority given to the rural sector is not accompanied by structural policy changes.
  
• Moreover, the intention of doubling farm income in five years seems to be dodgy.
  
• The plan to ‘skill’ 1 crore youth over the next three years begs the question whether there will be jobs created for them.
  

Not A Promising Budget

Rural electrification though, such as it is defined, is proceeding apace.

There is an incline towards the food processing sector -- 100 per cent FDI will be permitted in the marketing of value-added produce, as long as they are processed in India.

With such dynamism the intention of doubling farm income in five years seems decidedly dodgy.

In broader terms, looking at the rest of the proposals, the indelible stamp of the bureaucracy blended with a discernible tag towards the left is evident.

Cars and SUVs of all types will cost more, as will jewellery. Dividends will now be taxed in the hands of those who earn more than Rs 10 lakh from it. Smokers will fork out 15 per cent more in excise duties.

Sops Offered Not Enough

There is very little when it comes to relief:  1 per cent in corporate income tax to 29 per cent; no changes to individual income taxes except for raising the HRA deduction from Rs 24,000 to Rs 60,000. Tax rebate under another section of the Income Tax Act for those who earn Rs 5 lakh taxable, raised from Rs 2,000 to Rs 5,000! There is also a Rs 50,000 deduction on home loans up to Rs 35 lakh for a first home, priced at not more than Rs 50 lakh.

Most incentives are equally niggardly: Start-ups will get tax exemption for three years, except for MAT. Service tax, which now stands at 15 per cent, is exempted from affordable housing up to 60 square metres.

The plan to ‘skill’ 1 crore youth over the next three years begs the question whether there will be jobs created for them.

More Could’ve Been Done

Much has been read into by observers over the government’s resolve to retain the fiscal deficit target unchanged at 3.9 per cent for FY16 and 3.5 per cent in FY17. The logic being that possible inflation from a more relaxed fiscal deficit would be the most pernicious of taxes and hit the poor the hardest.

The resultant higher levels of investment into growth sectors allowing a higher deficit would have permitted but that does not seem to have many backers. In any case, the government has opted against it.

Some welcome liberalisation: shops can stay open for all seven days just like malls. Private entities can operate public transport systems. Income Tax officials will have less discretion to harass.

But, overall, yet another lost opportunity for this government.

(Gautam Mukherjee is a plugged-in commentator and instant analyser)

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