This year’s Budget had to be framed against the background of declining economic growth and the disruptions caused by demonetization. The tasks before the Budget were clear. The Budget speech in more than one place emphasizes the need for accelerating growth through raising consumer demand and increasing investment. Do the measures proposed match the intentions? First on the fiscal deficit. The budget proposes to contain it at 3.2% of GDP a little below current year’s deficit, and a little above the level projected earlier. Given the extraordinary circumstances, perhaps the relaxation is justified. The committee on fiscal deficit apparently wants to focus on “debt to GDP” ratio even though it has come to the conclusion that a fiscal deficit of 3% will be consistent with the new objective. There is considerable logic behind the prescription of a budget deficit of 3% for central government and 3% of GDP for all states together. This is in line with Household Savings in financial assets which if anything in recent years has been declining. Even in 2016-17, interest payments of central government constituted 46% of the net revenue of the Centre. In fact, it has become customary for every budget to project a new road map. Too many pause buttons will only make a mockery of the FRBM Act. Expenditures are the focus of the budget. Expenditures can be classified into three categories. (a) those that are aimed at accelerating growth directly. Capital expenditures fall in this category; (b) expenditures aimed at increasing consumption demand and (c) expenditures from a social welfare angle. The projected growth in capital expenditures for 2017-18 is 25.4 %. ‘This may include capital expenditures of Railways making the comparison with the previous year difficult. However the emphasis on infrastructure expenditure is welcome. There is a fairly large list of programmes and expenditures indicated in the budget speech. Many of them are extensions of existing ones. Nevertheless, they add up to a substantial amount. But their impact depends on how well they are executed. On the tax side, there are no fundamental changes in the tax structure. The reduction in the corporate tax applies only to MSMEs. The reduction in the income tax rate for the lowest slab is better than raising the exemption limit. We cannot afford to reduce the tax net. The Budget could have announced the changes in indirect taxes consistent with the new GST regime; on the whole the changes in the tax structure are minimal. Gross tax revenue is expected to increase by 12.3% in 2017-18 over the revised estimates for 2016-17. Nominal GDP in 2017-18 is expected to increase by 11.75%.
This gives a tax buoyancy of little above one. This is reasonable. What is then the overall picture that emerges? This is not a Big Bang Budget nor is it a Populist Budget. It is more a workman like budget. If public expenditures are key to promote investment and demand, much- will depend upon efficient implementation.
C. Rangarajan is a former Governor of the RBI
