The then-US President George W. Bush once said, “It’s clearly a budget. It’s got a lot of numbers in it.” It was clearly one of his ‘Bushisms’, but one that inadvertently pointed to the reason why people hate budgets — they have a lot of numbers.
Still, what Finance Minister Arun Jaitley spells out in his presentation on the last working day of February, traditionally the budget day, will be watched keenly by the common man. It will be Jaitley’s second budget but the first for a full year. What he says that day would influence how we spend, save, invest, plan for tax and, generally, live in the financial year that starts April 1. Its influence could be longer, perhaps, if indeed the Budget lives up to its billing as a document that charts a Government’s long-term intent on economic matters.
It makes perfect sense to keenly follow an often tedious speech of over two hours to see, as is hoped by some this time, if income-tax slabs will be rejigged to the taxpayer’s advantage, if more deduction will be allowed on interest paid on the home loan, or if senior citizens will get new sops. One could also be looking to see if infrastructure and manufacturing stocks are going to become hot.
Perfectly legitimate points of interest, they are. But there’s usually a message that’s far more important than these obvious highlights. One such happened three years back, in the 2012-13 budget, when it was suggested that changes to tax rules were being considered retrospectively. Its impact, negative as it was, was more powerful and lasting than many of the other proposals.
Generally, what is good economics for a country isn’t much different in principle from what is good economics for the home. Just that, in the former case, the factors at play are too varied, complex and volatile. The basics are just the same — control expenditure, especially cut those that don’t create much value in the future, increase revenue possibilities, and create conditions for future growth.
You can’t argue with that. But, it isn’t easy. Government after government has struggled to find the right balance. Many didn’t have the mandate for change, some didn’t have the ambient economic conditions, and a few had neither.
So, reforms, a crisp term for doing all the right things to ensure a sustainable economy, have only happened in fits and starts. Things are looking different now. Modi has a mandate that no prime minister since Rajiv Gandhi has had. There is, however, a suggestion that the spectacular victory of the Aam Admi Party in Delhi may slow down the reforms agenda a bit.
The economy does look better that anytime in the recent past though the global economy, whose well-being is important for India’s growth, looks a bit shaky.
Oil hasn’t been this cheap in six years, heartening because it accounts for a third of our import bill. India could also turn in a current account surplus — indicating more of exports of goods, services, and so on compared to imports — for the first time in seven years. Inflation seems manageable. What’s more, India could now be growing faster than China.
Given this background, economy watchers are interested in figuring out how some key themes would play themselves out in Jaitley’s budget. The first of this is fiscal deficit, the difference between expenditures and revenues.
The government has targeted fiscal deficit as a percentage of the gross domestic product to be 4.1 per cent for the year ending March 2015, 3.6 per cent for the next year, and 3 per cent for the year after. Generally, lower the deficit, the better. But if funding is curtailed when the investment situation is still iffy, as industry body Assocham warns it is, then the decision isn’t that easy. The year 2016-17 could be even more challenging, with new pay scales for Central Government employees due.
The case against huge deficits is that it makes capital investments difficult in the future, as the government usually funds it through debt and servicing the debt increasingly becomes a huge burden.
The second theme is creating a more enabling environment for business, in terms of simplifying tax laws and amending labour laws. Those supporting the long-pending Goods and Services Tax say it will be transparent and efficient. A road map for the introduction of the tax regime is expected in this Budget. Also, there are enough hints that labour laws may be revisited.
The idea behind this is that businesses can flourish and jobs can be created, as a result. That’s also linked to a theme that’s been talked about a lot since Narendra Modi became prime minister last year. And that’s ‘Make in India.’ Though critics have pointed to the futility of presenting India as a manufacturing hub for the world when the world economy itself is troubled, they do see merit in boosting manufacturing that can serve the huge domestic market, at least.
Analysts, therefore, expect infrastructure and manufacturing to see a lot of mention in the Budget, and a lot of activity post-the Budget. The ‘Make in India’ package may also be about reviving private investments and creating jobs.
So, be clued in on February 28 to see what the message beyond the numbers is.
