Budget 2017-18 is historic in more ways than one. The first of the post-planning era, this budget comes in the wake of the “tectonic policy initiatives” in the form of demonetisation and the adoption of the upcoming GST. The budget needed to be a roadmap providing policy direction to an economy that has showed signs of stagnating post-demonetisation. The aim was to provide growth stimulus in the form of increased allocation on infrastructure development, put more disposable incomes in the hands of the middle-class, to influence spending patterns impacted by the cash crunch, and most importantly, to encourage wholesale adoption of digital financial systems so as to achieve the government's stated objective of a ‘less cash’ economy.
Going by these parameters, it must be said that the Finance Minister has not disappointed, even if he has not taken the full-on radical approach that was expected in the wake of demonetisation. The budget has ticked the right boxes in terms of an increased resource allocation for agriculture, rural development, infrastructure, poverty alleviation and schemes oriented towards marginalised sections, the youth and women. The special emphasis on the rural economy and the informal sector in particular is much warranted, given that these sectors were the worst hit during demonetisation. As expected, and as should be the case, there is a definite thrust on infrastructure development with a record allocation of Rs 3.96 lakh crore.
There has been a huge hike of Rs 1 lakh crore in the agricultural credit targets for the coming fiscal. This is apart from the Rs 20,000 crore long-term irrigation fund that is being set up under NABARD (National Bank of Agriculture and Rural Development) and increasing crop insurance coverage to 50 per cent over the next couple of fiscals.
Relief to the MSME (Micro Small and medium Enterprises) sector, which witnessed a significant loss of jobs and productivity in the wake of demonetisation, has come in the form of a cut in corporate tax with an estimated 96 per cent of the companies expected to benefit from this. Flexibility in terms of time-frame during which to avail tax holiday benefits has also been provided to eligible SMEs. Tax rules have also been simplified for the sector with a view to ensuring greater tax compliance and the accrued revenue benefits to the government.
The real estate and housing sector has received a much-needed boost with affordable housing being provided infrastructure status. A change is also on the cards in terms of capital gains tax for housing with the holding period for land and building to be reduced to two years from three years.
A significant increase in funds allotted to MNREGA also means increased investment in the social sector with the objective of achieving the government’s goal of ensuring that one crore families are brought out of the poverty bracket within the fiscal. While increased allocation might be a good thing on the face of it, there are serious anomalies that need to be addressed in execution and delivery if the poor are to truly benefit as also the local infrastructure development projects that they are most often engaged in. The middle-class dream of increase in income tax exemption limits hasn’t been fulfilled but a carrot has been held out in the form of a 50 per cent reduction in tax rates for incomes falling within the Rs 5 lakh bracket.
A big ticket announcement has come in the area of campaign finance reform with cash donations to political parties capped at Rs 2,000. Any donations in excess of the same may either be accepted in digital form or cheque/bank draft or in the form of RBI bonds that they can redeem after a specified period. This could be labelled a case of ‘walking the talk’ to a degree, what with the government demonstrating that political parties are not exempted from the rules and standards applicable to the common man.
The continued emphasis on the shift to a digital economy is demonstrated by the fact that a Rs 10,000 crore budget allocation has been made for increasing broadband coverage. Cash transactions in excess of Rs 3 lakh have been disallowed, clearly with an intent to furthering the twin agendas of demonetisation i.e. anti-corruption and the shift to digital financial systems. All taxes and duties on PoS machines have been cut to encourage e-payments, although there has been no proposal to bring down the service charges and other additional levies to help people used to the comfort of cash make the digital switch.
In all, the budget can be labelled as one which generates a quiet optimism for the future even if there aren’t too many big bang announcements for the present.
(The author is an economic development and strategic advisor, who has written several books)