A FINE BALANCE

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

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.

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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