Dr. Syama Prasad Mookerjee Research Foundation

Budget 2017-2018: A Solid, Stolid & Entirely Consistent Effort

By Ashok Malik

In many ways, the Budget of February 1, 2017, came at a challenging juncture. Demonetisation, while an important step in a series of measures being taken by the Narendra Modi government to fight black money and illegal cash transactions as well as promote greater recorded and cheque or digital transactions, particularly in the B2B (business to business) chain, had caused some pain. It was likely to subdue consumer demand for about two quarters and had apparently hurt small businesses and traders, as well as those engaged in the mandis or big farmer markets.Second, the election of Donald Trump to the White House and the likelihood of a global demand slump as America shut itself behind tariff walls and global trade went into decline was worrying Indians. Third, with the Goods and Service Tax, another piece of reform with long-term benefit but short-term disruption, expected in the middle of financial year 2017-18, domestic turbulence was also predicted.

In these circumstances, the economy wanted reassurance and surefootedness. This is exactly what Finance Minister ArunJaitley delivered. His fourth budget was a solid, stolid and entirely consistent effort. It may not have been perfect and met every parameter of every analyst – no Budget ever can – but was remarkable in its unwillingness to resort to gimmickry and political populism even as critical elections approached in Uttar Pradesh and other states.

This followed a pattern. The fiscal deficit target had been a Lakshmanrekha for the Modi government from its first year itself, when Jaitley ambitiously adopted the number left to him in the vote-on-account presented by the outgoing UPA government. In 2017, after three years of fiscal consolidation, the NDA government had just that much more room to spend. Even here, Jaitley was judicious.

He refrained from going overboard, promised a fiscal deficit of 3.2 per cent of GDP this year and three per cent in the following year, but gave concessions and bigger outlays to infrastructure and housing in the hope of promoting private investment. Politically, he gave himself the space to spend intelligently in his final year (2018-19) – when the slow jog to the general election would commence.

Jaitley was right in offering a Budget with continuity and few shocks. He assessed the economy needed a balm – especially as, as the finance minister pointed out, “In several parts of the world, there are signs of increasing retreat from globalisation of goods, services and people, as pressures for protectionism are building up. These developments have the potential to affect exports from a number of emerging markets, including India.”

The impact of Donald Trump’s economic policies is a concern. These have the potential to trigger a United States trade war with China and a global slowdown. India will not be unaffected; that meant the room for adventurism and risk taking was just not there for the Indian finance minister. It also suggested why the Economic Survey, while such a remarkable document this year, remained an aspiration, as it tends to each year, irrespective of the government in question. Political realities and now global conditions tend to make it difficult to embrace bold and daring ideas.

Both Modi and Jaitley have a habit of sticking to points and promises made and sometimes even obsessing over them. When demonetisation was announced, the two men had spoken of it being the first of several moves against black money and corruption, as well as a trigger to promote digital payments. Inattentive critics had scoffed at such reasoning and ascribed it to an afterthought following the cash shortage in the early weeks after November 8, 2017.

Today, not only is the bulk of that cash shortage behind us, both the endeavours – fighting corruption and promoting digital payments – are being pursued. The honest citizen and tax-payer is being rewarded or at least being told she is not a fool for being honest and those who act dishonestly will be put to considerable inconvenience.

Tax incentives for point of sales (POS) machines, announced a month after demonetisation, were broadened and institutionalised in the Budget. Payments to the government, by way of taxes for instance, will henceforth mandatorily follow the digital route beyond a certain (and to-be-announced limit). Cash transactions above Rs 300,000 have been plain abolished. One suspects that ceiling will be lowered still further in the years to come. Prime Minister Modi’s “war on cash” is a serious one.

An important aspect of the battle against corruption is cleaning up campaign finance and election funding. In this the reduction of individual cash donations to a political party to a limit of Rs 2,000 – from the earlier Rs 20,000 – is a strong move. True, parties will try and work around this and at some point cash donations will have to go altogether, but it is still a good start.

The mechanism of “electoral bonds”, to allow donors to buy bonds from banks and leave it to chosen political parties to redeem these, is also a welcome innovation. It will allow white-collar folk to donate to a political cause or party, without necessarily interacting directly with the party and its politicians.

Overall, this Budget stuck to the BJP-led government’s key themes: infrastructure, including in agriculture, entrepreneurship at the grassroots, an energy revolution – the availability of and access to power will certainly be among the BJP’s calling cards in the campaign of 2019 – and tackling corruption. The phrase “Swacch Bharat” has been expanded from physical cleanliness to a moral and systemic cleansing.

In that, with its appeal as well as warning to those Indians still avoiding taxes – “The number of people showing income more than Rs 50 lakh in the entire country is only 1.72 lakh. We can contrast this with the fact that in the last five years, more than 1.25 crore cars have been sold, and number of Indian citizens who flew abroad, either for business or tourism, is 2 crore in the year 2015” – the Budget persisted with a Modi-Jaitley resolve: the willingness to sacrifice short-run popularity, even among those who may be BJP voters, to effect a longer-run transformation.

That mission continues. Of course, it will require 2019 to be won. The BJP cannot afford to, once more, repair a wounded economy, nurse it back to health – and, as in 2004, leave it to a successor to fritter away a rich and undeserved inheritance.

(The author is distinguished fellow, Observer Research Foundation. He can be reached at [email protected])