Union Budget can trigger growth, consolidation
If the Union Budget for 2015-16 can be explained in a single sentence, it is this: The Budget has taken care of the pressing needs of the common man while at the same time providing an impetus to corporate growth — and by extension to employment and wealth creation. It may be said that not all the pressing needs of the aam aadmi have been addressed or that not everything in the wish-list of the corporate sector has been met.
But then, no Budget has ever done that, nor will any future one be able to meet expectations one hundred per cent. Critics of the Government and the Budget will carp on the fact that, while Union Minister for Finance Arun Jaitley has not provided relief to the salaried class (to which a large chunk of the aam aadmi belongs) by way of increasing the limit on income tax exemptions, he has offered a reduction in the basic rate of corporate tax from 30 per cent to 25 per cent over a period of four years. It must be understood that income tax relief is not the only way to empower the salaried class, although no one will grudge it if it comes.
The common man seeks empowerment through job-creation, better salaries and working conditions. He also desires a robust social security net to see him through in troubled times. As regards the first, the lowering of corporate taxes, along with other measures that Mr Jaitley has announced, such as exempting Foreign Institutional Investors from paying the Minimum Alternate Tax, will propel the corporate sector to enhance its capacities that will in turn lead to job growth. Then there are measures, such as the massive push in infrastructure development, that will create an environment of growth and result in additional employment.
For all their claims about representing the interests of the common man, critics of the Narendra Modi Government and its Budget had never come close to creating a comprehensive social security regime of the kind that the Union Finance Minister has laid down in his Budget speech. Proposals to increase the limit in tax deduction of health insurance premium from the present `15,000 to up to `30,000; the introduction of the Pradhan Mantri Jeevan Jyoti Yojana to cover death by accidents at a premium of `330 per year; and the proposal to have a Pradhan Mantri Suraksha Bima Yojana that will offer accident insurance of two lakh rupees at the payment of a mere `12 per year, are all measures that will benefit the common man who is left to fend for himself, at the mercy of the scarce resources he has, in moments of medical exigencies. Indeed, the total deductions offered under various heads add to more than `4.44 lakh.
There is, thus, no justification in the argument that the Government has ignored the masses while taking care of the classes. Moreover, as the Minister has pointed out, the 30 per cent basic rate for corporate tax had led to two issues. The first is that the high rate had made the Indian corporate sector uncompetitive, and the second is that it had led to a below-par collection — at just 23 per cent.
Realising the need to fire up the investment cycle besides simultaneously targeting the need to stick to the path of fiscal consolidation, Mr Jaitley has unveiled a slew of measures that has the potential to make the Indian economy “fly” — a word he used in the Budget speech on Saturday and which a recent cover story in The Economist too headlined. He has hiked the outlay in infrastructure by `70,000 crore, though, as he admitted, more will be needed; a National Investment and Infrastructure Fund is proposed to be created, with the Government putting `20,000 crore on the table to begin with; and, tax-free infrastructure bonds will be issued to pump up growth in the road and the railway sectors.
If these proposals are implemented, fund constraints will be addressed to a large measure and the investing public too will have gains — and that too tax-free. Of course, infrastructure development, or for that matter any kind of economic activity, will truly perk up if the process of doing business is simplified and red tape is either eliminated or at least minimised.
The Budget offers hope that the Government is moving in this direction. It must be remembered that quite a few captains of industry have been saying that the difficulty of starting or expanding business in the country has been among the most prominent reasons for the economic decline. It is not just foreign businesses that have shied away from India due to this, but even the domestic industry has been grappling with the after-effects. The decision to appoint an expert panel to suggest a legislation that will cut down on the multiple permissions presently needed is, therefore, welcome. let us hope that the committee presents its suggestions soon and the Government acts on them promptly.
The Government's new gold policy with a view to further monetise the economy, too must be seen from the prism of the desire to commit funds in active use rather than have them lying in vaults without causing any real benefit to the economy. The proposal to create a sovereign gold bond and allow deposits of gold to earn interest should, thus, add to the Government's monetisation drive, and complement the larger picture the Government has for the flow of large investments in core areas.
This, then, brings us to an issue that has been debated at length: Fiscal consolidation. How is the Government, with its resolve to enhance public sector spending as a bait to invite more private funding in a spate of projects ranging from infrastructure to services to agriculture, going to keep within fiscal limitsIJ Mr Jaitley appears assured on this count though he admits that the Government's acceptance of the 14th Finance Commission's recommendation to allow 42 per cent of taxes from the divisible pool to go to the States, and the forthcoming suggestions of the Seventh Pay Commission, will considerably reduce the fiscal space for the Centre.
But, given that the Minister is confident of not just meeting the 4.1 per cent fiscal deficit target for this year, but also of scaling it down to three year over the next three years (as opposed to the targeted two years), he clearly has aces up his sleeve. The recent drop in international oil prices have obviously helped.
Mr Jaitley said at the beginning of his Budget speech that incremental changes would get us nowhere and that “we need a quantum jump”. He has tried to do that within the limits he faces. As they say: The proof of the pudding lies is in the eating. We have to see if the Finance Minister's proposals convert India into an economy that grows at the eight per cent or so targeted for now.