Budget 2015 Analysis: Jaitley gives growth a push, but fiscal concerns remain

The Union Budget 2015-16 has won a round of applause from all sectors and for good reasons at that. It has something for nearly everyone.

For the common man, while the tax slabs have remained unchanged, additional relief has been provided in terms of raising of limits of health insurance premium and transport allowance, both of which were long overdue.

Also, an added Rs 50,000 that can be saved by investing in pension is welcome as is the optional EPF, with employees having the choice of investing in National Pension Scheme instead.

The slew of measures for the poor including social security plans will be path-breaking if implemented on the ground. At a premium of Rs 12, the poorest of the poor get Rs 2 lakh of accidental death risk cover.

Similarly, the Budget seeks to give dignity to the old but poor, and provides the opportunity to earn reasonable pension with the government contributing 50% of the premium limited to Rs 1000 per year, helping millions of less privileged.

For the common man, a good alternative that the FM has proposed is the Gold Monetization Scheme and option of buying sovereign gold bonds with fixed interest rate. The move is also hugely well received for the fact that India remains a gold obsessed country and these schemes will remove our need to hold the metal physically while also encashing on gold which is unproductively lying in lockers.

What will hit the common man and businesses alike is the increase in service tax – this would mean that the aam admi has to shell out more in form of tax for simple pleasures like eating out. This would also hit consumption overall, which goes down badly in an economy that is mostly driven by internal demand.

For industrialists and business owners, the proposal to cut corporate tax from 30% to 25% in the next 4 years, as also to do away with exemptions is appreciable. This would unclutter the system, especially as a certain amount of manipulation was needed including hand greasing to avail exemptions.

The idea to stimulate the economy with public spending on infrastructure is another proposition that gets the thumbs up, especially at a time when private sector is not in a mood of loosening its purse strings.

And though the proposed Bankruptcy Law seems like a small measure, it will help clean up the system to a very large extent and also put new people in charge of old but defunct businesses. The move to micro finance thousands of businesses, to my mind, can be a real cracker as thousands and lakhs will find employment without big degrees, and this can be a game-changer.

The other measures to improve ease of doing business like removing tax uncertainty, introduction of digital invoices and electronic records, as well as modernising capital markets will go a long way. This is more so when India has been found to rank a low 142nd position in ease of doing business in the world index, and when prominent business faces like Deepak Parekh have recently lamented that things on the ground haven’t changed since the new government took office.

Meanwhile, the biggest concern area in the Union Budget 2015 is the lack of a roadmap to implement policies, and announcements related with fundamentals. For example, there have been a series of feel good proclamations on Black Money and how evaders will be slapped with Rigorous Imprisonment. But there is no clarity on how the black sheep will be identified and booked. Or, how precisely will the direct subsidy policy or Jan dhan Yojana become effective.

The even greater apprehension relates with the delay in meeting fiscal deficit targets. Though Arun Jaitley says he intends to achieve the fiscal deficit goal this year, he has prolonged the period by two years to reach the targetted figure of fiscal deficit of 3% of the GDP. This sends a wrong message in terms of the government’s commitment towards fiscal prudence. Also, the revenue deficit stays at 2.8% of GDP, which is much higher than it should be.

Moreover, there is no clarity on how the government proposes to raise such large revenues, if by chance it fails to mop up estimated additional taxes.

The last two or three points mentioned above are the most difficult to address and the Finance Minister has not been able to give convincing answers on precisely these. One can only hope that things fall in place as both PM Narendra Modi and Finance Minister Arun Jaitley would be hoping and India achieves its full potential of 8% growth in the coming year and then touches double digit figures, as estimated by the Economic Survey.

Because this is another of those chances to ride on the cusp of change, and the Indian economy badly needs to seize the opportunity if it wishes to pull millions out of poverty and develop as a country.