A FINE BAL­ANCE

FM JAIT­LEY PULLS OFF A PLEASE-ALL BUD­GET THAT LOW­ERS TAXES AND STIM­U­LATES KEY SEC­TORS, WITH­OUT COM­PRO­MIS­ING ON FIS­CAL PRU­DENCE

India Today - - COVER STORY - By M.G. Arun and Sh­weta Punj

AS UNION FI­NANCE MIN­IS­TER Arun Jait­ley rose to present in­de­pen­dent In­dia’s 87th bud­get—and his fourth—he had very few op­tions. Hard­pressed as he was to fol­low the fis­cal dis­ci­pline he had ini­ti­ated in 2014, he also had to of­fer a few sops to pla­cate those who had borne the pain of de­mon­eti­sa­tion. Union Bud­get 2017-18, then, shaped up as a well-cal­i­brated, cau­tious yet prag­matic doc­u­ment. It ad­dresses, to some ex­tent, the stated goals of this gov­ern­ment—mov­ing the coun­try to­wards a more for­mal struc­ture by widen­ing the tax base, re­duc­ing de­pen­dence on cash by en­cour­ag­ing dig­i­tal trans­ac­tions, help­ing grass­roots busi­nesses de­velop and cre­ate jobs, and sys­tem­at­i­cally curb­ing black money and cor­rup­tion.

Apart from the sops to af­ford­able hous­ing and new norms for elec­toral fund­ing to boost trans­parency, Jait­ley re­frained from throw­ing any sur­prises, or try­ing to please in­vestors with the so-called ‘big bang’ re­forms. They seemed pleased all the same, driv­ing the bench­mark Sen­sex up 1.76 per cent or 485.68 points on Tues­day to close at 28,141.64. “This is a growth-ori­ented bud­get,” said Adi Go­drej, chair­man of the Go­drej group. “Cou­pled with the im­ple­men­ta­tion of the GST (Goods and Ser­vices Tax), this will add to the GDP growth of the coun­try.” That should be mu­sic to the FM’s ears, com­ing as it did af­ter the Eco­nomic Sur­vey, on Jan­uary 31, had low­ered the coun­try’s es­ti­mated GDP growth rate to 6.5 per cent for 2016-17.

De­spite be­ing the aus­pi­cious day of Bas­ant Pan­chami— when Saraswati Puja is cel­e­brated in many parts of the coun­try—for Jait­ley, it didn’t start well. For­mer Union min­is­ter and Muslim League (IUML) leader E. Ahamed had passed away the pre­vi­ous day (Jan­uary 31), and Op­po­si­tion par­ties were clam­our­ing for a post­pone­ment of the bud­get. But with the speaker rul­ing oth­er­wise, Jait­ley be­gan his speech, in­vok­ing the warmth and op­ti­mism of spring. And per­haps that’s what Bud­get 2017-2018 ac­com­plished. The good part was the FM chose to de­vi­ate only slightly from the path of fis­cal con­sol­i­da­tion by peg­ging the fis­cal deficit for 2017-18 at 3.2 per cent of the GDP against the 3 per cent tar­get set un­der the Fis­cal Re­spon­si­bil­ity and Bud­get Man­age­ment (FRBM) frame­work. “The solid, con­sis­tent path of fis­cal dis­ci­pline con­tin­ues,” said chief eco­nomic ad­vi­sor Arvind Subra­ma­nian. The move to scrap the For­eign In­vest­ment Pro­mo­tion Board (FIPB) was lauded by many as it would help ease FDI in­flow into the coun­try.

DE­SPITE THE ‘HOUS­ING FOR ALL’ project an­nounced two years ago, there has not been much progress in the af­ford­able hous­ing seg­ment, pri­mar­ily be­cause there weren’t enough in­cen­tives for de­vel­op­ers. But with af­ford­able hous­ing now ac­corded in­fra­struc­ture sta­tus, ex­perts feel that the sec­tor will im­prove. “[The] tax bur­den on af­ford­able hous­ing projects will now be de­ferred, which is an in­cen­tive,” says Gu­lam Zia, a part­ner with prop­erty con­sult­ing firm, Knight Frank. Tax on joint devel­op­ment agree­ments (be­tween land own­ers and de­vel­op­ers) will also now have to be paid only upon com­ple­tion of project. “For projects un­der the ‘in­fra­struc­ture’ tag, tax on bank loans will also come down by 3-4 per cent,” he says. But on the flip side, the bud­get does

not ad­dress how land can be un­locked and made avail­able for af­ford­able hous­ing, es­pe­cially in city cen­tres.

The other key as­pect in the sec­tor is the gov­ern­ment prom­ise to con­struct 10 mil­lion houses for the home­less by 2019, which should boost de­mand in the ce­ment and steel sec­tors. Al­lo­ca­tion un­der the Prad­han Mantri Awas Yo­jana has been raised to Rs 23,000 crore and the Na­tional Hous­ing Bank will now re­fi­nance hous­ing loans of about Rs 20,000 crore in 2017-18, giv­ing a fur­ther push to the sec­tor. To be sure, in his New Year’s Eve speech, PM Naren­dra Modi had promised that in 2017, peo­ple from the mid­dle and lower mid­dle classes would get a dis­count of 4 per cent for home loans of up to Rs 9 lakh, and of 3 per cent for loans up to Rs 12 lakh. That, cou­pled with the pro­vi­sions of the bud­get, should help cre­ate new de­mand for houses.

The time limit for cap­i­tal gains to be con­sid­ered a longterm gain has been re­duced to two years from the ear­lier three years. This should also en­cour­age more buy­ing and sell­ing of prop­erty. “Af­ford­able hous­ing de­vel­op­ers will now be el­i­gi­ble for sev­eral gov­ern­ment in­cen­tives, sub­si­dies, tax ben­e­fits and, most im­por­tantly, in­sti­tu­tional fund­ing,” says Neeraj Bansal, part­ner at KPMG in In­dia.

IN­FRA­STRUC­TURE, AN­OTHER AREA that is of­ten talked about but is rid­dled with de­lays and can­cel­la­tions of projects, was given an­other push. With the Rail­way bud­get be­ing in­te­grated with the main bud­get for the first time, multi-modal trans­port was ex­pected to get a spe­cial boost. And just as in the pre­vi­ous years, Jait­ley did not dis­ap­point—a sig­nif­i­cant Rs 3.96 lakh crore has been com­mit­ted to de­vel­op­ing in­fra­struc­ture in the next fis­cal. He also un­veiled the largest-ever rail bud­get of Rs 1.31 lakh crore.

Vi­nayak Chat­ter­jee, chair­man, Feed­back In­fra, ex­plains that nearly 18 per cent of the to­tal bud­get out­lay is tar­geted at in­fra­struc­ture. The ma­jor thrust is on pro­grammes re­lated to high­ways, ru­ral roads, rail­ways and ru­ral elec­tri­fi­ca­tion. How­ever, there is a catch. The roads min­istry was un­able to spend the money al­lo­cated to it last year—of the Rs 58,000 crore al­lo­cated, only Rs 52,000 crore was spent. “The big­gest prob­lem was to get pri­vate in­vest­ment up, clean up in­fra­struc­ture NPAs (non-per­form­ing as­sets) and cor­po­rate bal­ance sheets. Not men­tion­ing that in the bud­get was a big gap,” Chat­ter­jee adds.

With rail ac­ci­dents all too com­mon in In­dia, the cre­ation of a rail­way safety fund with a cor­pus of Rs 1 lakh crore, which will be given seed cap­i­tal by the fi­nance min­istry, was long over­due. The Rail­ways will also in­crease its through­put by 10 per cent by up­grad­ing ded­i­cated cor­ri­dors that have high traf­fic vol­umes. It will also lay down 3,500 km of tracks in 2017-18. A new metro rail pol­icy will be an­nounced, and 25 sta­tions are ex­pected to be se­lected for re­vamp in 2017-18.

For the road sec­tor, Jait­ley has al­lo­cated Rs 67,000 crore for the na­tional high­ways in 2017-18, while the Prad­han Mantri Gram Sadak Yo­jana for ru­ral roads gets Rs 19,000 crore and some 2,000 km of coastal con­nec­tiv­ity roads are set to be con­structed. “The 12 per cent year-on-year in­crease in bud­get al­lo­ca­tion for the high­ways sec­tor, notwith­stand­ing an in­crease of 32 per cent in the pre­vi­ous year, still pro­vides a boost to in­fra­struc­ture,” says Deven­dra Pant of re­search agency In­dia Rat­ings. This is a much-needed push, Pant says, since the sec­tor has seen an in­crease of 37 per cent

year- on- year in the to­tal length con­structed in FY16, apart from the in­crease in land ac­qui­si­tion. How­ever, timely project ex­e­cu­tion within bud­geted costs will be crit­i­cal here.

CON­TIN­U­ING THE RU­RAL PUSH from his bud­get last year, Jait­ley has re­sorted to steps that put more money into the hands of farm­ers. The farm­ing sec­tor is look­ing up af­ter a good mon­soon ( the Eco­nomic Sur­vey sees agri­cul­tural growth ris­ing to 4.1 per cent in the cur­rent fis­cal from 1.2 per cent in drought- hit 2015- 16). To­tal al­lo­ca­tion for ru­ral, agri­cul­tural and al­lied sec­tors for 2017- 18 is a record Rs 1.87 lakh crore, an in­crease of 24 per cent from last year ( over last year’s bud­get es­ti­mates). Tak­ing a cue from the two con­sec­u­tive dro ught years that crip­pled the agri sec­tor, a mi­cro- ir­ri­ga­tion fund will be set up by Nabard for the goal of ‘ Per Drop More Crop’ ( ini­tial cor­pus Rs 5,000 crore). Nabard will also set up a dairy pro­cess­ing in­fra­struc­ture fund with Rs 8,000 crore. Al­lo­ca­tion for the ru­ral em­ploy­ment scheme MNREGA has been in­creased to a record Rs 48,000 crore for 2017- 18. Ad­e­quate credit flow will ak­istanalso be army en­sured spokesper­sonto two un­der- served ar­eas, the Maj. east­ernGen. Asif states Ghafoorand Jam­muhas said& Kash­mir. Farm­ers Pak­istan’swill get short- de­ci­sion term to crop ar­rest loans Hafiz of up to Saeed,Rs 3 lakh lead­erat a of sub­sidiseda ‘ phi­lan­thropic’ in­ter­est or­gan­i­sa­tion­rate of 7 per cent with­per an­num. es­tab­lishedFor prompt mil­i­tant re­pay­ment, cre­den­tials they and­get an sus­pect­edex­tra in­cen­tivelinks to of the3 per Mum­bai­cent, bring­ingter­ror at­tack­s­the ef­fec­tiveof 2008, in­ter­estis based rate on downa newto 4“na­tion­alper cent for pol­icy dis­ci­plinedand for bor­row­ers.the na­tional These, in­ter­est”. along with Modi’s De­cem­berSaeed, who31 an­nounce­men­thas a $ 10 mil­lionof 3 boun­typer cent in­ter­est placed waiver­son his on head loans by up the to Unit­edRs 2 lakh States,for con­struc­tio­nis of­ten of cited hous­esby In­di­ain ru­ralas the In­dia“master­mind”and 60 days’ of in­ter­est the waivers Mum­baifor farm ter­ror loans at­tacks, taken which from re­sulted co­op­er­a­tive in banks,the deaths should of form166 peo­ple,a strong in­clud­in­gru­ral stim­u­lus.

WHILE at THE least REDUCTION­four times be­tweenin per­sonal2002 in­come and­tax should 2009, boost­but was dis­pos­ablelet go af­ter in­comes,a few month­s­the mi­cro, small and in medium de­ten­tion. en­ter­pris­esThe pop­u­lar( MSME) ji­hadist sec­tor can has still come in for a big at­tract bo­nanza largein the crowds bud­get. with Firmshis anti- with Amer­i­caa turnover of up to Rs and50 crore anti- have In­dia had di­a­tribes.their taxes cut from 30 per cent to 25 per cent. But MSMEs mil­i­tary had in­sid­er­s­borne the are brunt say­ing of that de­mon­eti­sa­tion as Saeed’s de­mand house­for prod­uct­sar­rest in dwin­dledLa­hore on and Jan­uary­they strug­gled to pay 30 salarieshas to due do to witha casha fast squeeze. chang­ing While lo­cal this and is a re­lief, the move in­ter­na­tion­alto dou­ble the lend­ing en­vi­ron­ment, tar­get in­clud­ingto Rs 2.44 the lakh crore un­der the new Prad­han Don­ald Mantri Trump Mu­dra ad­min­is­tra­tionYo­jana will in be thea boost to the sec­tor. US Tax and con­ces­sionsa change givenof guardto the in MSMEs—the pow­er­ful in­creas­ing the pe­riod Pak­istanof profit- linkedarmy. de­duc­tions Sig­nif­i­cantly, avail­ableSaeed hasto start- ups from the been cur­rent de­tainedthree years un­der out the of stricter­five years Pak­istanto seven years, giv­ing an Anti- ad­di­tional Ter­ror five Act. years to pay Min­i­mum Al­ter­nate Tax ( MAT), and Gen­eral re­duc­tion Qa­marof in­come Javed tax Ba­jwa,for com­pa­niesPak is­tan’s with an an­nual turnover new of chiefup to of Rs army 50 staff, crore hasto 25 a rep­u­ta­tion­per cent ( 30 per cent now) of could be­ing free re­li­gious­lyup re­sources pro­gres­sive­for MSMEsand for mod­erni­sa­tion. pro- Ajay demo­cratic.Sa­hai of His­the Fed­er­a­tion­boss, Prime of Min­is­terIn­dian Ex­port Or­gan­i­sa­tions is hope­ful of some tar­geted stim­u­lus pack­ages, es­pe­cially to­wards the gems and jew­ellery sec­tor, af­ter the bud­get. Over­all, Sa­hai is more op­ti­mistic about the move­ment on free trade agree­ments with the Euro­pean Union where In­dia is los­ing to com­pe­ti­tion from In­done­sia and Thai­land and a more sta­ble cur­rency to give MSMEs a push. To­tal ben­e­fits from tax re­duc­tion for the MSMEs come to Rs 7,000 crore in for­gone rev­enue.

THE HOPE WAS THAT the bud­get would give a di­rect push to job cre­ation, which emerged as a top worry in in­dia today’s Mood of the Na­tion sur­vey pub­lished a week ago. Man­ish Sab­har­wal, chair­man of man­power firm Team-Lease, says the gov­ern­ment’s clear fo­cus is on in­fra­struc­ture and for­mal­i­sa­tion of the econ­omy, and not so much on hu­man cap­i­tal. “Our prob­lem is not jobs alone, it is good jobs. You have to raise pro­duc­tiv­ity,” he says. Sab­har­wal had urged the FM to re­duce what he calls “reg­u­la­tory choles­terol”— it is not the gov­ern­ment’s job to cre­ate jobs, but to cre­ate an en­vi­ron­ment for job cre­ation, he be­lieves. A NITI Aayog analysis says that among the Make in In­dia sec­tors, con­struc­tion gen­er­ated nearly 50 mil­lion jobs in 2011- 12, so a con­certed push here should cre­ate more em­ploy­ment. But that hinges on new de­mand. Leather gen­er­ated 1.31 mil­lion jobs in 2011- 12, tex­tiles 18.86 mil­lion jobs ( the sec­tor got a Rs 6,226.50 crore push in the bud­get), ports, rail­ways, roads and high­ways cre­ated 9.1 mil­lion jobs and tourism 8.22 mil­lion. These sec­tors, if re­ju­ve­nated, could mit­i­gate the em­ploy­ment cri­sis. Mean­while, the Rs 1,555 crore out­lay for re­mis­sion of state levies would help gar­ment ex­ports, Tex­tiles Min­is­ter Sm­riti Irani said. Gar­ments also got a Rs 200 crore boost to gen­er­ate jobs.

The pro­posal to re­duce cor­po­rate tax rates and balanc­ing it out with phas­ing out ex­emp­tions was an idea that found a lot of tak­ers, but was re­stricted to the MSMEs. The bud­get makes no def­i­nite push to­wards in­creas­ing con­sump­tion. The FM has adopted a clever play of num­bers while cit­ing a 24 per cent in­crease in ru­ral and so­cial spend by com­par­ing this year’s bud­get es­ti­mate to last year’s. Ideally, this year’s bud­get es­ti­mate should have been com­pared with last year’s re­vised es­ti­mate, which yields 7 per cent ex­pen­di­ture growth, ex­perts say. Many felt the FM should have ad­dressed the re­cap­i­tal­i­sa­tion of pub­lic sec­tor banks reel­ing un­der bad loans. “The bank­ing sec­tor needed more money for cap­i­tal­i­sa­tion and the Rs 10,000 crore in the bud­get is too lit­tle,” says Chanda Kochhar, MD and CEO of ICICI Bank.

The bud­get sidestepped the im­pact of de­mon­eti­sa­tion. Many feel the FM’s si­lence was an im­plicit ad­mis­sion that the gov­ern­ment’s ini­tial es­ti­mates of black money hold­ings in cash were off the mark. It was also im­por­tant that the bud­get didn’t ruf­fle feath­ers with five states go­ing to polls soon af­ter. Given this, it must be said that Jait­ley walked the tightrope well, with some flour­ish even, in the way that he has man­aged to put money in the hands of the aam aadmi with­out re­sort­ing to any fis­cal ex­trav­a­gance. n

Com­pared to last year’s re­vised es­ti­mate, this bud­get yields 7% ex­pen­di­ture growth

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