In a few weeks time from now, Union Finance Minister Arun Jaitley will be tabling the General Budget for 2017-18, the penultimate one before the NDA government must perforce seek the mandate of the people for renewal of governance in 2019 under the charge of Prime Minister Narendra Modi.
For Modi, who believed in Schumpeterian creative destruction by demolishing the erstwhile Planning Commission to inaugurate Niti Aayog to usher in a new era of cooperative federalism, the advancement of the Budget from the wonted practice of presenting it on the last working day of the month of February to the very first day did not mean much. The ostensible reason trotted out for the change that brings a manifest benefit such as presentation of single Appropriation Bill (including the estimates of Ministry of Railways after its budget getting blended with Union Budget, another novel feature engineered by Modi sarkar) to Parliament for the expenditure of the government for the full year, precluding the need for a separate Bill for ‘vote on account’ for incurring expenses for the first two months.
Another advantage as claimed by the authorities is that obtaining the imprimatur of Parliament on full budget would facilitate operationalising the expenditure for new schemes/projects dovetailed into the budget from the inception of financial year (i.e. from April 1) with Ministries / Departments planning their expenditure allocations for the whole year even better. It is altogether another saga that the government appointed Shankar Acharya committee to study the feasibility of shifting financial year to January 1 from the extant practice of April 1 has also presented its report to the Finance Minister on December 29.
This is another exercise in transmogrifying conventions perfected by Mr. Modi in his flair for innovative practices that put paid to traditional method of governance that has all but bred complacency, sloth and slovenliness across the board!
Be that as it may, the position of the Finance Minister working under abrupt alterations announced by his leader and the Prime Minister—be it demonetisation or any institutional extirpation, is quite unenviable as it upsets viability and sustainability of existing machineries purported to serve the public. Add to his agonies is the delay in bringing about the Goods and Services Tax (GST) that would supplant a spate of indirect taxes being slapped by the Union or State governments so as to remove multiplicity of taxes and their dreadful cascading consequences. If the existing standoff between the Centre and the States on dual administration/control of the proposed GST is held hostage to politics, the probability of bringing this important tax reform to herald a common national market for goods and services to get kick-started from the second half of the next financial year is the most likely outcome as opposed to any earlier date being seriously bandied about by the wistful Finance Minister.
Working under unfolding uncertainties on fundamental issues ranging from fiscal levies to be announced in the budget for the next fiscal particularly rationalization, hike or cut in customs/excise duties being minimal to the spin-effects of demonetization that had left its trail of travails across the real sectors of the economy, what pro-poor, pro-growth or pro middle class sops Mr. Jaitley can fashion is anybody’s guess! But the incontrovertible truth remains that the country’s tax to gross domestic product (GDP) ratio is quite insubstantial.
At 16.6 per cent, India’s rank is lower than the emerging economies’ average of 21 per cent and may well-nigh be far below the advanced countries’ average of 34 per cent. It needs to be noted that way back in 1993 the Raja Chelliah Committee on tax reforms revealed that the breakup of total taxes was 8.5 percent from indirect and only 15 per cent from direct taxes. This skewed pattern in fiscal structure needs to be set right but over the decades it has not been corrected markedly even as indirect taxes impose a burden heavily on the poor as they are iniquitous. The replacement of indirect taxes with GST might perhaps cushion the pain provided the proposed GST rates take due care of the consumption needs of the swathe of population that exist on the margins with no income or any income that is not indexed to inflation.
With the domestic economy getting buffeted by the aftereffects of declaring not legal tender high value denomination currencies of Rs 500 and Rs 1000 since November 8 midnight as reflected in the slowdown of activities in the real sectors of the economy in the subsequent quarters, it would be a herculean task to find resources for undertaking plan and development expenditure, particularly social and physical infrastructure, both of which are in dire need of infusion of investments to improve delivery of quality services. With the implementation of the Seventh Pay Commission from the current fiscal to the army of government employees, the task becomes tougher than what it was a year ago.
On the farm front, the government had to face two years of successive droughts both in 2014-15 and in 2015-16 with farm sector growth tepidly inching from a poor base this year was quite well known. But despite this natural mishap, the Modi government did not show much flair for the farm sector’s genuine revival when it was most needed in the initial years .However, it subsequently saw the writing on the wall in the widespread rural distress and tried to mend matters by some cosmetic inducements here and there. But the simple most important anti-farmer measure it took was to liberalise import regime for commodities and grains by slashing import duties indiscriminately and across-the-board with growers and farmers being subject to work under unfair competition from cheap and subsidised farm goods from the developed world.
Thus, effective from September 23 the import duty on wheat was slashed from 25 to 10 per cent which was subsequently cut to nil from December 8, while import duty on crude palm oil of edible grade too was cut from 12.5 to 7.5 per cent and on refined palm oil of edible grade from 20 to 15 per cent. At a time when advanced economies like the US and the UK opted for a patently protectionist leaders lest employment to natives should not be in jeopardy, it is a reflection of the Modi government that it did not find it fit to safeguard its own poor farmers who toil on the soil, despite all the harsh conditions, both manmade and natural.
The Indian peasantry is no doubt in silent resentment against what the British Prime Minister Theresa May eloquently excoriated against “the privileged few”, with the Government at the Centre not budging from its obdurate posture of not encouraging the agricultural sector with gusto and seriousness in an economy where a majority of people eke out their existence on cultivating a small holding, either on their own or on behalf of the privileged landowners.
This situation is fraught with risks if the authorities do not bring to bear some relief measures to the agrarian economy so that its inveterate ire is not translated into making India a permanent importer of even essential agricultural goods it needs for its rising populace. The answer to this agrarian agony needs to be spelt out in the forthcoming budget.
On the industrial sector, the less said the better as the manufacturing machinery remains in a comatose state, despite several initiatives like Make in India, Start-up India, Stand Up India, Zero defect, Zero effect programmes the Prime Minister launched with intense fanfare. It is a pity that the manufacturing sector, which alone could provide and guarantee employment opportunities for millions of unskilled, semiskilled and skilled people, is nowhere near the ambitious 8 per cent growth the policy wonks had been contending for decades.
India’s ambition to be a developed nation before long would remain a pipe dream if the requisite incentives for industrialization even in frontier areas, if not the traditional ones like bricks-and-mortars, are not put in place with alacrity, lest the restive workers should also become potential sources of trouble.
Considering the various constraints currently operating in the economy with uncertainty factors about how the growth potentials could be galvanised looming large, the next year’s Union Budget is an exercise in skating on thin ice. It requires exceptional efforts and innovative measures to inject optimism grounded on realities, so that the people of the country do not feel short-changed or disappointed by a wasted opportunity to usher in ache din for all. The feisty Finance Minister with his lawyerly mastery of minute details would, one hope, rise to the occasion and see that the economy is steered out safely of the choppy waters on which it is cruising perilously.