Union Budget 2017 Continues Reconstruction After UPA’s Decade of Decay

The union budget 2017 has continued on the path of economic recovery and stable governance. It was a budget that largely stuck to the goals set out at the beginning of NDA-2 like infrastructure development, outcome-oriented initiatives for the poor, fiscal consolidation and gradual administrative/policy reform. The job of clearing the mess created by UPA 1 & 2 continues, resolutely.

Here are the standout features of this year’s budget in our assessment –

  • Much-needed support for MSME (Medium, Small and Micro Enterprises) through corporate tax rate cut to 25% from 30% for companies with annual turnover up to ₹50 crore. This move will benefit 96% or 6.67 lakh of the 6.94 lakh companies filing returns.
  • Total allocation for rural, agricultural and allied sectors for 2017-18 is Rs 1,87,223 crore, which is 24% higher than last year.
  • Total allocation for infrastructure at record Rs 3.96 lakh cr (out of which Rs 2.41 lakh crore is for transport sector- railways, road and shipping).
  • Income tax for people with incomes between 2.5 lakh – 5 lakh, reduced to 5% from 10%
  • Despite increased outlay for key sectors, Government has moved ahead on the fiscal consolidation path by pegging fiscal deficit for 2017-18 at 3.2%, down from 3.5% expected in the current financial year. This means that the additional spending is being sourced from the 17% growth in tax revenue (partly due to demonetisation and other reforms), and not through borrowing.
  • Budget Operational Reforms –
    • Rail budget merged with general budget, ending an outdated 92-year-old colonial practise whereby the British imperialists focused disproportionately on railways as it provided the means of plundering Bharat’s wealth. It will facilitate multimodal transport planning between highways, railways and inland waterways.
    • Another colonial-era tradition was ended by advancing the budget to 1 Feb instead of 28/29 February, so that the legislative approval for annual spending plans and tax proposals could be completed before the beginning of the new financial year on 1 April.
    • The distinction between plan & non-plan expenditure has been ended to give a holistic picture, as it had become dysfunctional and an obstacle in outcome-based budgeting.
  • Government has sent a welcome signal of intent to increase transparency in political funding, by capping anonymous cash donations at Rs 2,000 instead of current Rs 20,000. RBI will be issuing electoral bonds as well. To curb black money transactions, the maximum quantum of cash transaction allowed is Rs 3 lakh.
  • 36 pc increase in FDI flow; FIPB (Foreign Investment Promotion Board) has been done away with – this will further reduce red-tape for foreign investors.

What could have been better

Job creation continues to be an area of concern – all the effort to provide improved governance will come to nought if we are not able to drive private investment, and create more jobs in manufacturing and services. As noted economists like Dr. Arvind Virmani and Surjit Bhalla have argued, reduction in tax rates for both corporates and individuals is a must if we have to be competitive in the global marketplace and to improve our poor tax compliance rates –

“In a 2015 study “The 2014 Global Tax Competitiveness Report”, aggregate corporate income taxes for 95 countries for every year since 2005 to 2014. India had the 14th highest corporate tax rate for the manufacturing sector (29.5 per cent)

The World Bank estimates that in 2016, Indian corporates paid a tax rate of 60.6 per cent of corporate profits — this is composed of 21 per cent corporate income tax, 4 per cent dividend distribution tax, 15 per cent social security contributions, 14 per cent central sales tax, etc.

How much do our East Asian competitors pay? An average of 35 per cent. Our South Asian neighbours pay 38 per cent, Bangladesh corporates pay 35 per cent. India’s rank on tax rates — 172 out of 190 countries.”

Demonetisation was an attempt to clean up existing reserves of black money. Prevention of future generation of black money requires lowering of tax rates to trigger improved compliance, working on political funding reform, and changing the bureaucratic mindset which views entrepreneurs with suspicion.

Two other major areas which need reform for the economy to really take off are labor laws and education/skill development. Without good education and market-relevant skills, our burgeoning young population will be left jobless and restless. It remains to be seen how the 50 new international-level skill development centres announced in this budget will perform.

All of the above reforms – reduction of corporate tax rate, labor laws, education – are political hot-potatoes. One wrong move and you can be dubbed a “suit-boot ki sarkar” by a raucous opposition that thrives on propaganda and cares two hoots for national interest. With a minority in Rajya Sabha, never-ending election cycle, and poor organizational base of the party in most of East and South Bharat, one can understand why the NDA Government moves with caution. But the surgical strikes and demonetization move show that this Government does have appetite for changing the status quo.

Nation-building requires political will over all else – what is disheartening are the self-inflicted blows such as retaining ministers who have neither a mass base nor the skills for the job; a complete lack of depth when it comes to core civilizational issues like education reform; zero movement on police reform; and worst of all – absolute radio silence on the increasing persecution of Hindus in Kerala, West Bengal, J&K, West UP, Tamil Nadu, etc. The Government’s legal team also requires major revamp as they lose all too frequently to the left-liberal cabal which dominates proceedings in the highest court of the land.

If you are a Hindu nationalist with the best interests of Bharat at heart, you are bound to feel some disappointment with the Modi Government. But the task of building a resurgent Bharat is not an easy one – we are trying to change a national psyche brutalized by centuries of colonization. One five-year term is not enough, we must keep persevering. As Deng Xiaoping said “build your capabilities, bide your time”.


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