The maiden Budget of the Narendra Modi Government to be presented on July 10, is expected to be a tight-rope walk for Finance Minister Arun Jaitley as he is hardpressed to do a fine balancing act in order to meet the expectations of the ‘inflation-hit’ salaried class on one hand and revive growth while keeping up with the fiscal deficit target of 4.1 per cent leftover as a legacy by the UPA.
Miffed by the recent spate of ‘pre-Budget’ hikes in rail fares and fuels, the salaried class is eyeing the main Budget to bring some succour. Particularly in terms of higher general exemption limit in Income-Tax from the present Rs 2 lakh per annum to say Rs 3 lakh; a hike in the 80C deduction limit from the present Rs 1 lakh to Rs 1.5 lakh and exemptions under section 80D of IT Act to include premium on health and housing. For the middle class this is seen to bring some consolation with little more income at their disposals particularly in the wake of the savings rate in the economy having slipped to a shocking ten-year-low of 30 per cent.
But is the recent pre-Budget hike an aberrationIJ “I feel the (pre-Budget) hike takes care of the subsidy reduction part and now the FM can concentrate on the full Budget,” former Finance Secretary CM Vasudev told The Pioneer. However, Vasudev does not see any major concessions coming from Finance Minister Jaitley in his maiden Budget due to the fiscal and growth compulsions albeit some minor tweaking. The 80C deduction limit might be raised a wee bit and be enhanced to Rs 1.5 lakh or Rs 2 lakh, but for FM Jaitley bringing about these tax concessions will indeed add to the woes of the Government exchequer as already it has spent 45 per cent of the budgeted expenditure by May.
A ‘back-of-the-envelope’ calculation indicates that these concessions would set back the Government’s direct tax kitty by as much as Rs 60,000 crore. But won’t these essentially mean implementing the Direct Tax Code (DTC) which was postponed by the previous FM P ChidambaramIJ On similar lines, the Goods and Services Tax (GST) is yet to come out of the woods with the States still undecided about the issue of compensation of the loss of their share in revenue. With these issues, will the new Finance Minister bite the bulletIJ It will have to be seen!
Casting an ominous shadow on the Budget this time would be the ghost of high food inflation which stood at 9.5 per cent by May -inherited from the UPA. More so, matters are likely to get worse in the wake of the reportedly weak monsoon this time which experts say will be deficient by as much as 60 per cent. “I think the present Government is much better prepared for price stabilisation even with a weak monsoon,” added Vasudev.
The RBI has also been taking a stiff stand with ‘inflation targeting’ in its monetary policy desisting from softening the interest rates. But then this has hurt credit offtake and hence, manufacturing growth and in turn employment generation, which the last Government had pegged at ten million by 2024.
Under these stark realities, a major priority for the FM in the Budget would be to kick-start growth — which has slipped to an abysmally low level of 4.5 per cent in the previous fiscal. Along with this, curtailing expenditure along with generating employment should be the added collaterals. India Inc is optimistic that the growth would kick up given the strong and stable Government at the Centre. “Stable and strong Government at the Centre has sent good signals overseas and within the country,” industry sources said. This is much reflected by the strengthening of the rupee and the BSE benchmark sensex touching lifetime high and crossing the 25K mark on PM Modi taking oath on May 26.
PM Narendra Modi has been emphatic on ‘bitter medicine’ by downscaling expenditure. Indicative of this were the recent hikes in the rail fares non-subsidised lPG. The total subsidy bill - on account of fuel, fertilizer and food -- has been estimated at Rs 2,46, 397 crore for 2014-15, as per the Vote on Account. For 2014-15 these sectors have been demanding atleast Rs 1,13,000 crore more - subsidy for food on account of the Food Security Act demands 25 per cent more. Moreso, the previous FM Chidambaram, despite mopping up over revenue of over Rs 60,000 crore through spectrum auction and PSU disinvestment proceeds, has rolled over expenditure largely ‘on the new govt’ in his VoA. For FM Jaitley, this would be the tricky part in the 2014-15 Budget. All said and done, the Modi budget will have to ironout these financial jugglery of the previous government.