Union Fince Minister Arun Jaitley has walked on the right side of caution with Budget 2017-18 despite much speculation about what the rendra Modi government will do to offset the cash ban disruptions. Prior to this political flashpoint, the government had set in motion a reform exercise to bring forward tabling the budget to February 1, abolish plan and non-plan distinctions in expenditure, and co-opt the railway budget within the general budget. Considering how unique the budget this time happens to be, Jaitley has been at pains to strike as much balance as he can. With the Economic Survey calling for cuts in individual and corporate tax rates, Jaitley has expectedly given some relief to middle class taxpayers to soothe their demonetization pains. The budget proposes 5% tax reduction for those earning less than Rs 5 lakh yearly, as well as a 5% tax cut for small and medium enterprises with yearly turnover below Rs 50 crore. It is being questioned whether 10% surcharge on those earning above Rs 50 lakh and 15% surcharge on those earning more than Rs 1 crore yearly will at all encourage higher net worth individuals to declare their earnings. However, the Fince Minister’s stand should be welcomed on equity grounds, for it is those with modest incomes who should have first claim to whatever relief the government can afford to give. As for declaring income, the government has already made it clear post-demonetization that it is now less about providing incentives and more of pelizing those guilty of under-reporting. Significantly, the Fince Minister did not make too many changes in indirect taxes like excise and service tax, as these are soon to be replaced by the Goods and Services Tax (GST) regime. He has said that ‘all pending issues have been resolved’ by the GST council overseeing its implementation this year. While he has identified GST implementation along with demonetization as ‘tectonic policy initiatives’, it is likely there will be more bruising political battles ahead with political parties like Trimool linking one with the other.
As for demonetization, the Economic Survey has cut growth forecast to 6.5% in the current fiscal, which is expected to rebound to 6.75-7.5% in 2017-18 after currency ban effects wear off. However, the Fince Minister claims that ‘with the current pace of remonetization’, the impact will not spill over to the next fincial year. It is clear from Jaitley’s budget speech how much the demonetization hoodoo is weighing upon the NDA government’s projections, with his claim that this ‘bold and decisive move helps to transfer resources from tax evaders to government’. The budget proposes to take the cashless drive forward by banning cash transactions above Rs 3 lakh, while promoting the BHIM app among individuals and merchants through two schemes as well as an Aadhar-ebled payment system. He has hiked allocation for Railways by 20%, Defence by 10%, rural and agriculture sectors by 24%. Considering the less-than-favorable impression about the BJP-led government over its policy towards minorities, Jaitley’s announcement of 35% hike in allocation for implementing welfare schemes for SCs, STs and minorities bears political significance, particularly in the light of elections in key states including UP. Apart from the fixing the target for agricultural credit in 2017-18 at a record Rs 10 lakh crores, the budget promises prioritizing lending to dalits, tribals, backward classes, minorities and women under the Pradhan Mantri Mudra Yoja. And the Fince Minister is confident he can cap the fiscal deficit at 3.2% of the GDP, and judging from the rally in the bourses, the corporate sector seems to believe him. But in the aftermath of demonetization, the budget’s most telling message is in the proposals to clean up political funding — banning individual dotions above Rs 2,000 for parties, issuing electoral bonds through authorized banks to eble dotions, and making it mandatory for parties to file income-tax returns within the prescribed time limit. If these proposals are firmly implemented, it will address a glaring weakness in the Prime Minister’s crusade against black money — that such a campaign cannot succeed without cleaning up the cesspools of political funding.