Bud­get 2017


India Today - - INSIDE - By Raj Chen­gappa

Fi­nance min­is­ter Arun Jait­ley presents an aam aadmi bud­get, steer­ing clear of any overt pop­ulism or big-ticket an­nounce­ment post-de­mon­eti­sa­tion

IN LIFE OF PI, the Os­car-win­ning movie about a ship­wrecked In­dian’s fan­tas­tic tale of sur­vival with a fe­ro­cious tiger in a boat adrift on the Pa­cific, the in­sur­ance agents have a hard time be­liev­ing him. So Pi spins an al­ter­na­tive nar­ra­tive that elim­i­nates the tiger and brings in hu­mans. And then asks: which story do you be­lieve?

Af­ter un­leash­ing the de­mon­eti­sa­tion tsunami, Modi had donned the man­tle of the great re­former and mod­erniser who was un­afraid of tak­ing risks and of­fend­ing his core sup­port­ers if he be­lieved an ac­tion would re­sult in the greater good of the na­tion. He had po­si­tioned him­self as the new mes­siah of the poor and had also ap­pro­pri­ated the role of a cru­sader against cor­rup­tion.

Now past the half-way mark of his ten­ure, Modi was acutely aware that the bud­get could make or mar his chances of be­ing re-elected as prime min­is­ter in 2019. He was also con­scious that while there was broad-based sup­port for his dras­tic moves to root out black money, he had to now pro­vide some balm for all the pain the de­mon­eti­sa­tion had in­flicted. On the im­me­di­ate hori­zon were the as­sem­bly elec­tions, par­tic­u­larly in Ut­tar Pradesh, where a de­feat for the BJP could mar the re­main­ing years of his ten­ure.

There were other equally crit­i­cal con­sid­er­a­tions. De­mon­eti­sa­tion had con­sid­er­ably slowed In­dia’s eco­nomic mo­men­tum and his gov­ern­ment was forced to ad­mit that GDP growth would be down from 7.5 per cent to 6.5 per cent. Pri­vate sec­tor in­vest­ment and ex­pan­sion had al­most ground to a halt, with key sec­tors re­port­ing a drop in de­mand and prof­its. Banks, sad­dled with bad loans even be­fore de­mon­eti­sa­tion, re­mained con­ser­va­tive and were cau­tious about lend­ing to cor­po­rates de­spite now be­ing flush with funds.

The prime min­is­ter was also deeply con­cerned with the job famine across the coun­try, ex­ac­er­bated by the short­age of cash, par­tic­u­larly in the in­for­mal sec­tor. One in­di­ca­tion was that there was higher off­take of em­ploy­ment un­der the Mahatma Gandhi Na­tional Ru­ral Em­ploy­ment Guar­an­tee Act (MNREGA) in the cur­rent year—clearly a sign of dis­tress.

In­ter­na­tion­ally, there was a wor­ry­ing turn of events with both Brexit and Don­ald Trump’s vic­tory sig­nalling the be­gin­ning of a pos­si­ble de­glob­al­i­sa­tion process and a new era of pro­tec­tion­ism. There was a global slow­down in de­mand and eco­nomic growth. There was con­cern that there would be higher out­flows of for­eign in­vest­ment from emerg­ing economies like In­dia back to the US. The tra­di­tional ex­port-led growth model In­dia had banked on for two decades was be­gin­ning to fal­ter.

MODI WAS FACED with some tough choices. Ev­ery­one ex­pected him to give the econ­omy a booster shot to ar­rest the down­ward spi­ral and bring GDP growth back to 7 per cent lev­els. While for­mu­lat­ing the bud­get, Modi and Jait­ley, how­ever, re­sisted the temp­ta­tion of in­dulging in fis­cal ad­ven­tur­ism or straightout pop­ulism. In­stead, they homed in on four crit­i­cal ar­eas of con­cern: how to boost in­vest­ment, how to gen­er­ate de­mand, how to cre­ate more jobs and, how­ever counter-in­tu­itive it seemed, how to main­tain fis­cal pru­dence.

For Modi per­son­ally, there were two more im­per­a­tives—he was clear the bud­get should un­der­line his pro-garib image. Also, it was im­por­tant that the bud­get showed that de­mon­eti­sa­tion was not a full stop but a comma in his bat­tle against black money. So Modi and his team de­cided to risk it all and bet big on Bharat—that other In­dia of the less priv­i­leged masses in ru­ral and ur­ban ar­eas.

To boost in­vest­ment, with big cap­i­tal show­ing no ap­petite for ex­pan­sion, they de­cided to in­crease spend­ing on ma­jor pub­lic welfare un­der­tak­ings and schemes. But in­stead of an­nounc­ing a host of new schemes to win ap­plause, as has been the habit, the team fo­cused on aug­ment­ing spend­ing in key sec­tors, par­tic­u­larly in­fra­struc­ture, that were al­ready show­ing good re­sults. The most vis­i­ble was in the road sec­tor, where Jait­ley claimed

that the NDA gov­ern­ment had built 140,000 km, or 160 km a day, since they came to power in 2014. His bud­get pro­vided Rs 64,900 crore in 2017-18 for this sec­tor—a 12 per cent hike. Since the con­struc­tion sec­tor was largely in­for­mal, any surge in in­vest­ments would see the cre­ation of more jobs, par­tic­u­larly for unskilled work­ers.

TO BOOST DE­MAND and em­ploy­ment, Modi and his team then homed in on an­other de­mo­graphic im­per­a­tive in In­dia: apart from roti (food),

kapda (clothes), ev­ery In­dian de­sires a makaan (shel­ter) that s/he can call home. The bud­get and the prime min­is­ter’s New Year’s eve sops con­tain a raft of mea­sures and in­cen­tives de­signed to boost de­mand and in­vest­ment for the hous­ing sec­tor, both in ur­ban and ru­ral ar­eas. Among them was the de­ci­sion to give af­ford­able hous­ing the in­fra­struc­ture tag, which would help lower in­ter­est rates on bank loans, and also a pro­posal to build a stag­ger­ing 10 mil­lion houses by 2019 un­der the Prad­han Mantri Awas Yo­jana.

Then, in­stead of re­ly­ing on big busi­ness to de­liver on jobs, they de­cided that “small is more beau­ti­ful” by back­ing the Mi­cro, Small and Medium En­ter­prises (MSME) sec­tor. MSMEs ac­count for the bulk of eco­nomic ac­tiv­i­ties across the coun­try—they are the largest em­ploy­ers. This was also the sec­tor that faced the brunt of the ill-ef­fects of de­mon­eti­sa­tion. Iron­i­cally, these busi­nesses were pay­ing an ef­fec­tive tax rate of 30.3 per cent while the rate for large in­dus­tries was 25.9 per cent. So, in one shot, Jait­ley re­duced in­come tax to 25 per cent for smaller com­pa­nies with an­nual turnovers of up to Rs 50 crore.

Some­what the same ap­proach was taken to pro­vide re­lief to small wage-earn­ers with in­comes of less than Rs 5 lakh and bring back the ‘feel-good’ fac­tor. These con­sti­tute as much as 80 per cent of the to­tal tax­pay­ing pub­lic of 37 mil­lion. For them, Jait­ley re­duced the tax rate to al­most neg­li­gi­ble lev­els, claim­ing that this would widen the tax base in the fu­ture by en­cour­ag­ing more peo­ple to file re­turns. While the high net­worth tax­pay­ers and the mid­dle class may chafe, Modi was able to put money in the hands of the peo­ple who faced the most hard­ship dur­ing de­mon­eti­sa­tion. It also helped in re­it­er­at­ing that his gov­ern­ment favoured the have-nots.

Two oth­ers pieces com­pleted this finely bal­anced bud­get. On curb­ing black money gen­er­ated by po­lit­i­cal fund­ing, Modi knew that he would have trou­ble mod­i­fy­ing the Rep­re­sen­ta­tion of the Peo­ple Act to bring in more strin­gent con­trols, as his party lacked a ma­jor­ity in the

The PM and FM homed in on four key ar­eas: boost in­vest­ment, gen­er­ate de­mand, cre­ate jobs and main­tain fis­cal pru­dence

Ra­jya Sabha. So he used the bud­get to turn into law mea­sures that would bring down the vol­ume of anony­mous do­na­tions and also in­tro­duced a sys­tem of elec­toral bonds to keep track of fund­ing.

Fi­nally, Modi re­sisted the strong push to throw fis­cal pru­dence to the winds. Had he taken that path, it might have won him brownie points at home, but there was the dan­ger of it lead­ing to in­fla­tion­ary ten­den­cies just when the gov­ern­ment had boasted that it had man­aged to keep in­fla­tion strictly un­der check. Also, af­ter the de­mon­eti­sa­tion drive, which was strongly crit­i­cised by many for­eign in­vestors, Modi was keen to project to the world that his gov­ern­ment be­lieved in con­sis­tency, con­ti­nu­ity and fis­cal con­sol­i­da­tion, and as an of­fi­cial put it, “drew a lak­sh­man

rekha for us that we would not be al­lowed to cross”. He was also care­ful not to an­nounce schemes that would make him fall afoul of the Elec­tion Com­mis­sion.

Jait­ley ex­uded con­fi­dence that his fourth bud­get would be a gamechanger and in his speech said: “When my aim is right, when my goal is in sight, the winds favour me and I fly.” (For an as­sess­ment of the bud­get, see

ac­com­pa­ny­ing re­port.) Min­utes be­fore Fi­nance Min­is­ter Arun Jait­ley pre­sented the bud­get to Par­lia­ment, the Union cab­i­net met to give its con­cur­rence, as is the norm. At the meet­ing, Prime Min­is­ter Naren­dra Modi, in an un­usu­ally stern tone, in­structed his col­leagues: “Go through the bud­getary pro­vi­sions for your re­spec­tive min­istries with a mag­ni­fy­ing glass and see that ev­ery­thing gets un­der way by April 1.”

Modi is acutely aware that he may fal­ter in the over-re­liance on gov­ern­ment and its bu­reau­crats to de­liver. The ma­jor crit­i­cism against the bud­get is that in­stead of re­duc­ing the gov­ern­ment’s in­volve­ment, it has only ex­panded Bharat sarkar’s role in devel­op­ment. The other fail­ing is that Jait­ley did noth­ing to re­duce the amount of sub­si­dies on fer­tilis­ers and food, which have, in fact, grown in the new bud­get. Ashok Lavasa, fi­nance sec­re­tary, pleaded help­less­ness in re­duc­ing the food sub­sidy as more and more states are cov­ered un­der the Na­tional Food Se­cu­rity Act. He said the gov­ern­ment had gone a long way in plug­ging loop­holes and en­sur­ing that sub­si­dies reach the peo­ple through such mea­sures as the Di­rect Ben­e­fit Trans­fer scheme.

Modi’s crit­ics say that far from think­ing of the next gen­er­a­tion, the prime min­is­ter al­ways has his eyes on the next elec­tion. That he is tall on talk and short on ac­tion. So, is Modi, the great helms­man, nav­i­gat­ing In­dia suc­cess­fully through these stormy waters to pros­per­ity and glory? Or is he an em­peror with­out clothes who will soon be exposed? Which nar­ra­tive do you be­lieve?

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