Prudence Over Populism

Nothing outlandish. Nothing damaging either. Finance minister Arun Jaitley’s fourth budget (his first was only for seven months) was a surprisingly measured one. Given that growth projections are lower than last year’s, along with the demonetisation impacts, expectations of higher spending were high. And given the upcoming state elections, there was speculation that the budget could roll out big sops. Jaitley stuck to prudence, projecting a fiscal gap of 3.2%, deviating only slightly from the target of 3%. Net borrowings will remain flattish. The budget was somewhat disappointing to those hoping for a big income-tax relief as a reward for patiently putting up with demonetisation’s pains. The overall downside is that if nominal growth (GDP not adjusted for inflation) ends up shorter than 11.7% as estimated, the government’s goals could go awry. Budget 2017-18 unveiled a landmark shift in poverty alleviation with targeted poverty reduction based on the Socio-Economic Caste ­Census-2011 through Mission Antyodaya. Is this the NDA government’s answer to the UPA’s MNREGA? The decision to junk the Foreign Investment Promotion Board is significant; it will help India better its ease-of-doing-­business score. To prevent dirty money masquerading as FDI, a new gate-keeping mechanism is however needed. The big misses in the budget announcements were, of course, a clear roadmap on the Goods and Services Tax and full details of money deposits, post-demonetisation.

The Macro Picture

Takeaways

• The government’s fiscal deficit at 3.2 per cent is only slightly higher than the target of 3 per cent. Clearly, the government is ­sticking to a path of fiscal consolidation.

• The rise in expenditure is to the tune of 10.7 per cent, almost similar to last year’s rise.

• To achieve the fiscal-deficit target, nominal GDP growth must be 11.7 per cent as estimated. Any shortfall will spell trouble.

• Resisting the temptation to overspend augurs well for inflation.

FM Hints At A New Fiscal Path?

Takeaways

• These are the new recommendations for a fiscal roadmap by a committee that reviewed the FRBM Act, India’s ­fiscal-discipline law.

• Although there is a case for higher ­spending, Jaitley said he is refraining from it

• The government could be deferring a big splurge to next year, closer to 2019 polls.

Paradigm Shift In Poverty Fight

Takeaways

• Though MNREGA allocation is the highest ever, the effective raise isn’t much. A substantial chunk will go into paying past dues of nearly Rs 3,000 crore.

• The government will introduce a composite index of poverty-free panchayats, a new poverty metric.

• The baseline for the new index will be created with data from the Socio-Economic Caste Census 2011, rather than the official poverty line.

How The Government Spends More Than It Earns

Takeaways

• The government’s fiscal deficit has been progressively coming down, largely due to compliance with the FRMB Act.

• The government has limited ability to take on big debts at this juncture.

• Spending, therefore, is largely from within budgetary resources.

Key Terms In The Budget

• Multiplier Effect An increase in input, such as spending, resulting in comparatively higher change in output or income across the economy

• GDP The value of all goods and services produced in an economy

• Revenue Expenditure Spending that doesn’t go into asset creation, such as interest, salaries and subsidies

• Capital Expenditure Spending that goes into asset creation, such as roads

• TEC ‘Tansform, Energise and Clean’ India, summing up the government’s goals

Digital Push

Going Online, All The Way

• Rs 3 lakh cap on cash spending

• Rs 745 cr allocation for an Electronic Development Fund

• 3 million more swipe machines to be added by Sept 17

• 250 number of electronic investment proposals under process

• 350 online training courses in collaboration with Microsoft under Swayam, a new scheme

• 1,50,000 number of panchayats to have ­broadband by end of 2018

Tax: Take Some, Give Some

• 5% Tax rate for income between Rs 2 lakh and Rs 5 lakh for all, from 10% earlier

• 10% Surcharge on income between Rs 50 lakh and Rs 1 crore

• 15% Surcharge on income beyond Rs 1 crore

• 25% Lowered tax for small firms with turnover of Rs 50 crore

Takeaways

• Given the pain of demonetisation, people expected bigger tax sops as a reward. That didn’t happen.

• The lowered tax rate for the Rs 2-5 lakh slab will result in savings of Rs 1,000 a month.

• 90% of Indian firms, which fall in the Rs 50 crore turnover bracket, will pay lower taxes now.