FM inches closer to fiscal targets, bold moves on political transparency

He decided to do no harm to economy at a time when he can't give it a big push on expenditure

A fiscally strapped finance minister has been most reluctant in offering sops to the Indian citizens expecting payback from their patience in standing in queues to change or deposit high value currency notes. In Budget 2017-18, placed in Parliament, finance minister Arun Jaitley has put his emphasis on inching as close as possible to the fiscal targets, changing the norms for recognition of capital expenditure to show the government has delivered on socially necessary targets and expanded the powers of the tax officials to go after unaccounted income. He has expectations that the GST will come in but cannot even now put a firm date to it except to say “an extensive reach out effort to trade and industry for GST will start from 1st April, 2017”. The actual date is still in the air.  

The courageous part of the Budget is the proposed change in financing of political parties to bring in transparency, including the floating of Election Bonds, and the reduction to 25% of tax rates for MSMEs. There is also a higher tax threshold for the lowest among the income tax payers. Both the latter segments are presumed to have been hit by demonetization the most and have been rewarded, consequently. 

The Budget has thus made only a 0.34% rise for investments in agriculture, a 0.47% rise in education and a 0.3% rise in health expenditure in terms of GDP for next year. The actual numbers looks more impressive only when they are compared with the year on year rise in budgeted numbers—revised for 2016-17 and budget estimates for 2017-18. These are the sectors where the government needed to deliver on the quality of human capital. In fact data has been bad news for the minister this time— the most tracked budget document, Budget At A Glance, has a typo error for the fiscal deficit for 2016-17 printing it at 3.2%. On close reading, it does not appear a typo. The Medium Term Fiscal Policy Statement notes on page 15 “In nominal terms the GDP growth has been assumed at 11%…in the current financial year even though the CSO advance estimates at 90 basis points higher”. If the higher GDP had been retained the fiscal deficit would have slipped to 3.2%—take your pick. 

Beyond the data issue, in the larger picture the minister has been also hamstrung in sops to budget for next year as there is hardly any reduction in major subsidies and a meagre rise in non-tax revenues in this year. A weak base makes it risky to budget for large giveaways, next year. For instance, in 2016-17, the principal reason for the gloom is the Rs 34,373 crore dip in receipts from telecom auctions. On top of that, he had to make provision for a sharply worsening performance by the railways. Its operating ratio has slipped to 94.9% against 90.5%. 

Jaitley has tried to make up this shortfall by posting an expected Rs 30,000 crore rise in disinvestments for next fiscal and budgeting for a robust rise in tax revenue. In the current fiscal, the tax GDP ratio has risen to a creditable 11.3% of GDP from less than 10% last year, and the minister expects this to rise to 12.2% of GDP in 2017-18. These are tough assumptions to make for a budget made in a difficult global environment. 

These explain why the finance minister has been parsimonious— restricting his benevolence to direct income for salary earners earning less than Rs 5 lakh. But at the same time he has been harsh on unaccounted money— relatively junior tax officials can make enquiries without needing to get clearances from superiors. He has decided to do no harm to the economy when he can’t give it a big push on expenditure front. Or is there a supplementary budget expected after the state elections?