Context
The fiscal prudence is timely, but the Budget lacks measures to revive the economy
Difficult times
Author states that the Union Budget has been presented in the background of
- Growing protectionism
- Poor investment climate in the country due to the stressed balance sheets of corporate and banking sectors
- Severe distress caused by the demonetisation move
- Slowdown: National Income estimate released by Central Statistical Organisation (CSO) show a slowing down of all sectors except Agriculture and public administration
In the backdrop of the above scenario, it was expected that Budget would initiate measures to revive the economy
New features
Author states that this year’s budget had a number of new features.
- Advancing of budget presentation: Besides advancing it by a month to complete the process of passing the Budget within the financial year
- Merger of railway budget with Union Budget: The merger of the Railway Budget with the main Budget helps to plan and develop the transport sector as a whole
- Doing away with the distinction b/w plan & non-plan expenditure: The abolition of the Plan and Non-Plan distinction, which in fact was the recommendation of the Expert Committee on Efficient Management of Public Expenditure in 2013, helps to look at each of the sectors in a holistic manner and avoids distortions in allocating resources between maintenance of existing assets and creation of new assets
- Outcome budget:The Budget speech also refers to the Outcome Budget being placed in Parliament. Of course, it remains to be seen to what extent the Outcome Budget provides a link between outlays and outcomes
Read More:What is Outcome Budgeting?
What more should have been done?
- Rationalizing subsidies: Budget has done little to rationalize explicit subsidies which at ₹2.7 lakh crore constitute 1.6% of the GDP. In fact, subsidies claim as much as what has been allocated to defence and are just a little lower than capital expenditures. Food and fertilizer subsidies alone constitute ₹2.4 lakh crore
Explicit subsidy: This is a type of subsidy wherein government defines budgetary outlays. Explicit agricultural subsidies include such programmes as government purchases of agricultural surpluses and government payments to farmers
Implicit subsidy: This is a type of subsidy wherein government suppresses the supply price. Implicit subsidies include utilization of such techniques as exchange rate manipulation (whereby, for instance, there are official multiple exchange rates applicable to different categories of transactions), price controls, and quantitative restrictions on trade, as well as other methods of manipulating the terms of trade either for or against farmers
What does rationalization of subsidies mean?
Rationalization of subsidies mean to manage the funds more efficiently. To use the funds for welfare of the poor only instead of wasteful expenditure for the creation of political constituencies and vote banks
Read More: Go to this link to learn more about subsidies, Visit this link to learn more about rationalization of subsidies and why is it necessary?
- No substantial increase in Capital expenditure: Author states that with a slowdown in key economic sectors and the slowing down of private consumption, the sole drive of growth, in lieu of demonetization, it was hoped that Budget would make a substantial increase in capital expenditures. The aggregate capital expenditure in 2017-18 as a ratio of GDP is just about 1.8%, which is the same as in 2016-17 (revised estimate)
- Cutting the excise duty exemption list: On indirect taxes, given that the Goods and Services Tax (GST) is scheduled to be rolled out in July 2017, some rationalization in excise duty could have helped to smoothen the transition. There are 300 commodities exempt from excise duties and the list could have been cut
Mixed picture on tax sops
- 25 per cent reduction in tax rate for companies: Reduction in the rates of tax for companies with less than ₹50-crore turnover to 25% from the existing 30% brings in benefits to 96% of companies
- Reduction in tax on personal income: The reduction in the tax rate to 5% for individuals up to ₹5 lakh income provides some relief. At the same time, the scope of surcharge has now been expanded to people with taxable income of ₹50 lakh to ₹1 crore at 10%; the present 15% surcharge on those earning more than ₹1 crore will continue.
Conclusion
Author concludes by stating that budget is good in parts. The most important positive is the fiscal prudence (reigning the fiscal deficit by judicious use of resources) and perhaps the most disappointing is the lack of measures to revive the economy in the prevailing difficult global and domestic environment
