Budget likely to be people-centric with business friendly reforms

New Delhi, Jan 17: As the NDA Government gears up to present its last full budget on February 1, it is bound to examine the political impact of each of its policy decision.

The budget has often been described as a political document. This has never been more true than right now when the country will be facing as many as eight state assembly elections in the run up to the general elections in 2019. No wonder then that there is wide expectation of this budget being more populist and less reformist.
At the same time, this is a government that has moved forward on game changing policy measures like demonetisation and the Goods and Services Tax (GST) even at the risk of adverse public reactions. It should therefore be assumed that this will be a people friendly budget that will include business-friendly reforms.
On the populist front, the budget is likely to provide some sops for the salaried classes who provide most of the direct taxes. Putting more money in the hands of the middle class is also an urgent requirement. It will lead to more buying of goods and services, thereby spurring demand and pushing growth. These concessions could be in the form of raising the tax exemption limit or increasing the limit for investments in specified savings instruments. Some tax benefits may also be given for senior citizens, a growing segment in the country.
It must be pointed out that the budget is significantly different from the past in that most indirect taxes are now subsumed in the GST. Only the GST Council can now take decisions on raising or cutting these taxes. So the usual tinkering with indirect levies is no longer possible. But petroleum products are still out of its purview. So petroleum excise duties could possibly be cut in order to provide relief at a time when world oil prices are rising steeply.
Given the fact that 2017-18 is expected to record a four year low of 6.5 per cent growth, the budget proposals are likely to place a big focus on reviving the economy with public and private investment. Infrastructure is the key area and roads, railways and power are bound to be given enhanced allocations along with incentives and concessions. There is even the possibility of a fresh launch of infrastructure bonds.
Housing is another critical area where concessions may be given in order to give a boost to construction. The Ministry is reported to have asked for a three fold rise in outlay. A substantial increase is inevitable given the fact that this is an employment generating sector. Skill development and employment issues are also likely to be given attention in the budget proposals.
As for corporate tax cuts, Finance Minister Arun Jaitley already laid down a road map for reducing it from 30 to 25 per cent in 2015. Currently, India has an effective rate of over 30 per cent, higher than most other countries in this region.
But Mr Jaitley has a problem of raising resources too. With oil prices rising relentlessly, the import bill has risen exponentially this year. Besides, revenue inflows have also been lower than expected owing to the launch of GST. It may not be possible for the Finance Minister to continue down this path of lowering corporate taxes at this point when revenue collections are not at the highest. Containing the fiscal deficit is the key issue right now. It was pegged at 3.2 per cent for 2017-18 but there may be some slippage. He may have little option but to relax the deficit target of 3 per cent for 2018-19, given the huge expenditure that is likely to be needed to boost the rural economy as well as infrastructure segment.
Mr Jaitley thus has a tough job in the forthcoming Budget. With lower resources, he has to balance the country’s accounts while also providing a populist dimension in this annual financial exercise. There is no doubt, however, that he will keep his eye firmly fixed on reviving the agricultural and infrastructure sector of the economy in order to ensure at least 7 per cent growth in the next fiscal. UNI