The country can heave a temporary sigh of relief after Budget 2017. No far-reaching policy measures were introduced but following the monumental blunder of demonetisation, the Finance Minister remained conservative, considering that he was logjammed for fiscal headroom.
In its “Real State of the Economy 2017” report, the Congress highlighted the jobs deficit as the biggest crisis facing India. Since Prime Minister Modi came to power, there has been a steady decline in job creation. The latest numbers from the Labour Bureau show less than 1.5 lakh new jobs were created in 2016 and unemployment rose from 12.9% in 2014 to 13.2% in 2016. The Finance Minister continues to be unimaginative in addressing the levers of job creation. Instead of heeding the Economic Survey’s advice to focus on apparel and leather, which generate employment, there are no targeted incentives for these sectors.
On other fronts, the Finance Minister attempted damage control through three key measures. The MGNREGA saw an increased outlay of ₹48,000 crore. The important caveat is a substantial amount may end up in clearing pending liabilities to the tune of ₹14,000 crore. The measure, though, is a tacit admission by the government of the impact of demonetisation on migrant construction workers in urban India, who have now resorted to reverse migration, back to rural India.
Two, the lowering of the tax rate to 5% for people earning less than ₹5 lakh. This is a feeble attempt to revive India’s consumption-driven economy which took a massive hit from demonetisation, especially considering significant inflation in health and education services.
Rebate for profit-makers
Three, corporate tax rates have been cut from 30% to 25% for Medium, Small and Micro Enterprises. The key point to be noted here though is the tax rebate is only applicable to companies that register profits. An analysis by the Centre for Monitoring Indian Economy reveals that many small companies are not even able to cover their interest costs. Therefore, the measure is unlikely to have any impact on the most distressed MSMEs in the wake of demonetisation.
The Budget offers zilch for those worst-affected by demonetisation. In fact, the poor continue to be squeezed by the government’s reliance on regressive indirect taxes to shore up its revenues. The Indian people have been subjected to huge increases in excise duties on petrol and diesel, over the past few years. This at a time when global crude oil prices were falling.
Finance Minister Jaitley indulged in sophistry when it came to addressing rural distress. He pointed out that the rabi sowing acreage numbers has increased, while clearly ignoring the low-base effect arising due to a normal monsoon, following two successive drought years. He provides no clear road map on how farmers incomes will be doubled in five years. Increased farm credit may flow more to agri-business firms, who corner interest subvention in the name of farmers.
Mr. Jaitley announced a record ₹3.96 lakh crore of infrastructure spending. Every year, we see such tall promises. However, there is a wide gap between the NDA government’s targets and its ability to execute. We have seen this with Swachh Bharat, roads, Digital India rollout, soil testing centres, and so on. When the numbers are tallied at the end of the year, the unspent amount helps meet deficit control targets, at the cost of much-needed public investment.
Even then, this year, Mr. Jaitley will miss the fiscal deficit target, aiming for 3.2% instead of 3%. At a time when foreign portfolio investment is declining, this is not a good signal to investors. Clearly the expected windfall from demonetisation has not come through. Further, with growth slowing at least by 1%, according to the IMF, Mr. Jaitley has been forced to deviate from fiscal deficit reduction targets. It is worth remembering that even the 3.2% target will be met only due to the oil bonanza.
The Finance Minister’s response to the crisis in private investment is tepid. Industrial credit growth is at a historic low, suggesting that stressed banks are hesitant to lend while entrepreneurs are loathe to invest. Still recapitalisation of banks gets a token Rs. 10,000 crore.
To be politically correct,Mr. Jaitley lowered the anonymous donation limit to political parties to Rs. 2,000 from Rs. 20,000. This will have little impact as parties will continue to exploit the loophole by showing an increase in the number of unknown donors. There is little clarity on the electoral bonds idea he floated. Overall, one can only commend the intent to reform political funding.
Prof. M.V. Rajeev Gowda is a Congress MP in the Rajya Sabha.
