Union Budget 2015-16

A CHALLENGE

The Finance Minister of India, Arun Jaitley is set to present the union finance budget 2015-16 on 28^th February 2015. The expectations from BJP’s first full fledged budget since coming to power last summer, are high on both sides i.e. the BJP and the country. The Modi-Shah election juggernaut was stopped this month by Kejriwal and it is being perceived as the end of BJP’s honeymoon period. Understandably, BJP would want a budget that could please one and all, a populist budget. It will help its Bihar and West Bengal campaign later this year and renew the energy of the party that doesn’t want to return to its ‘Ram Mandir politics’ after making ‘Development’ its tagline.

A country which likes everything free and has been falling for populist policies for the past 60 years, latest example being the AAPocalypse we witnessed on February 10, is not hard to please. In fact, such populist measures are just the legal counterparts of the practices of purchasing votes by offering free liquor and cash. It is safe to assume, a populist budget would solve BJP’s problems for the time being and coupled with Amit Shah tactics, Bihar wouldn’t be a problem.

However, Narendra Modi is the Prime Minister of India and not of the BJP and he needs to prove it with this budget. He promised to bring in economic reforms to set the Indian economy on the right path and it is high time his dear friend and FM of India, Arun Jaitley, delivers on those promises.

MY EXPECTATIONS

I expect the government to reinforce its commitment towards fiscal reconsolidation (bringing the deficit down to 3.6%) and manufacturing sector boost.

1) Fiscal Deficit:

• Global Oil Price Slump: The nosediving oil prices have presented India with a glorious opportunity to curb its fiscal deficit and build on the positivity with foresight and intelligence.
  
• Subsidies: According to reports, the government aims to cut the subsidy bill by 20%, from $40bn to $32bn. However, a major part of it will come from lower fuel subsidy costs. Nearly Rs 10,000 crore ($1.6 billion) of the savings could come from clamping down on corruption in fertiliser distribution and adjusting food subsidies. 
• Cash Transfers : The Pradhan Mantri Jan Dhan Yojna which has opened more than 12 crore bank accounts over the last 6 months should now be put to full use by making cash transfers directly into AADHAR synced accounts to reduce the corruption that has been ailing India’s PDS for decades.

2) Taxation reforms:

• Swift implementation of GST: Goods and Service tax is expected to be this budget’s highlight and I have little doubt that the government will take important steps towards its implementation. I expect Arun Jaitley to give a timeframe and deadline regarding the same.
• Domestic savings: Savings was the factor that saved us from the 2007 economic meltdown and this budget should take definitive steps towards increasing the domestic savings. The tax exemption limit should be increased further by 50k to add to the 50k increase the last budget had to take the limit to Rs 2 lacs. This will nullify the internalization due to Permanent Income Hypothesis and jumpstart the savings.
  
• Increase the tax base: Income from agriculture in India is not taxable and this needs to change. It may be noted that the so called poor small farmer in any case would be outside the clutches of payment of agricultural income-tax because the income in any case up to Rs. 2,50,000 per annum for every adult member of the farmer’s family will be exempt from income-tax. I also feel that taxing agriculture will only lead to a sense of financial awakening among the farmers and will have positive effects in the long term.
  However, given how politics in India works, even the current Modi government cannot dare to touch the agriculturists of India.

3)Manufacturing sector:

• Needs growth: While Service sector is booming in India, manufacturing sector is not showing the growth it should. India’s Industrial production grew just by 1.7% in December 2014 compared to 7.9% in China and 5.16% in Indonesia.
• Make in India: In line with the 'Make in India' initiative taken by the current government, the manufacturing sector needs backing in the form of tax concession. In this regard, lowering the corporate tax rate from current 33.99% to 25% would be a welcome step. Catherine Mann, OECD Chief Economist said recently, “India should move towards a more productive taxes, reduce corporate tax and broaden the base. In comparison to other emerging economies, corporate tax is high, but it yields low revenue. Thus, it has not proved to be a productive tax structure and our recommendation is to implement VAT.”
• Labour Laws: Steps should also be taken to ease the stringent labour laws to help increase the productivity and encourage business friendly environment. Being 142^nd among 189 countries in business friendliness rating is abysmal for a government that wishes to promote India as a business hub globally.
• Infrastructure: Infrastructure needs to be improved if India wants to become a true manufacturing force and this budget should focus on allocating funds towards building and improving the infrastructure, especially in the less developed states in order to promote balanced growth.