(MK Venu is Executive Editor of Amar Ujala publications group.)
It is said that a decent deal is one in which all parties are reasonably satisfied, but are left with a feeling of wanting more.
On the face of it, Finance Minister Arun Jaitley's first full budget seems to be a cautious act of pleasing all sections - the poor, middle class, farmers and businesses - leaving them a tad bit confused whether they should have got more out of him. For now, these constituencies may be satisfied. However, this should not cause a sense of smugness that the ruling party is so prone to from time to time.
In the medium term of two to three years, Modi and Jaitley will have to do a lot more expectation management with the various constituencies the Budget has sought to address. In that sense, the Budget is just the beginning of the trial for Jaitley. The Finance Minister is yet to fully outline the details of some of the structural reforms NDA is currently undertaking in the area of subsidies on food, fertiliser, kerosene, cooking gas and diesel.
Clearly, the biggest risk for the NDA will emerge from the exercise of subsidy targeting that Jaitley has often spoken about as his government's mantra. The one stark reality the government needs to internalise is that over 85 per cent of the country's population has per capita spending of less than Rs 100 a day. That works out to an income of Rs 15,000 a month for a household consisting of five persons. Therefore, when Jaitley and his team constantly talk of targeting the poor for handing subsidies, over 85 per cent of the population actually expect to be targeted.
It doesn't matter that the official poverty line-based targeting - such as it is - may cover less than half of those who feel they are entitled to the subsidies. Over the last ten years, the policy narrative was moving towards targeting a broader population for the purpose of welfare schemes. After much kicking and screaming, the UPA admitted publicly in 2012-13 that the official poverty line had no real sanctity and that a socioeconomic and caste census must determine how a broader section of the population would be covered for delivering various welfare programmes.
The NDA is showing some signs of reversing that consensus if you go by the Shanta Kumar Committee recommendations on food procurement and distribution which says that only 40 per cent of the population be covered.
Finance Minister Arun Jaitley carefully avoids these tricky issues in his Budget speech, but clarifies he is working on them. So the Budget speech does not fully capture these debates happening on the subsidy front. Jaitley talks of cooperative federalism, but his own party's governments in Chattisgarh and Madhya Pradesh have opposed tooth and nail the replacement of their subsidised food distribution system with direct cash transfers. The point is that a lot is happening behind the scenes even as the Budget statement per se tries to be everything to everyone.
At a macro-level, Arun Jaitley bets heavily on growth, which will have to be driven largely by infrastructure investments coming from PSUs such as Railways, NTPC, ONGC, NBCC, etc. This strategy became visible when Suresh Prabhu outlined his government's ambitious vision of raising Rs 8.5 lakh crore over the next five years for the modernisation of the Railways.
The big reliance on PSUs clearly suggests the private sector is not ready for the initial phase of investments in the economy, especially in infrastructure. It is possible Modi wants to fashion a massive government-led infrastructure boost on the lines one has seen in East Asia and China. However, typically in those countries, people do not raise questions regarding capital efficiency in publicly-funded infrastructure projects. It is a moot question whether India's democratic institutions will behave in the same manner. In this sense, there is some future risk in putting up mega government-funded projects. However, the mission to build six crore low cost housing units in rural and urban areas is very welcome. If the government can ensure cheap land to house 60 million people, it will have earned the goodwill of the rural and urban middle class for a long time to come.
On the tax front, Jaitley has not introduced any major new taxes, but the increase in service tax and excise duty across the board will increase prices for the consumer. Corporate tax would be reduced by five per cent over the next four years but will be accompanied by withdrawal of all existing exemptions. The Finance Minister gives with one hand and takes away with another.Though the corporate tax rate today is 30 per cent, after exemptions the effective tax rate is about 23 per cent. So after removal of exemptions,,the net corporate tax rate goes up to 25 per cent at the end of four years, as per Jaitley's plan. This will make the system more transparent. The Finance Minister is confident that GST will kick off from April 2016. These two together should complete the direct and indirect tax reform.
The proposed black money law, with a non-compoundable ten-year prison term and assets in India liable to be seized, is totally the need of the hour as it would prove to be the biggest deterrent to unaccounted money going from of India to foreign bank accounts.
The gold monetisation scheme, if implemented well, can bring into the productive stream a lot of the $1 trillion-plus of gold held by Indian households. This has been tried with some success by private finance companies. One doesn't know whether it can happen on a mega scale with PSU banks taking the lead.
The Budget assumptions look somewhat uncertain against the backdrop of the statistical upscaling of the GDP numbers as per the new series, details of which are not disclosed fully yet. It is hard to say how the 8.5 per cent GDP growth projected for 2015-16 will translate in terms of the real experience of the economic players. For that, we will have to wait and watch.
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