Image: Vikas Khot (For illustrative purposes only)
Even a staunch critic would not dispute that the terrain Finance Minster Arun Jaitley was asked to walk on was difficult. Political compulsions hung on him like the sword of Damocles: Several states were going to polls and the government was into the second half of its tenure. Add to that the possibility of rising Fed rates, uncertainty around commodity prices, especially that of crude oil, and increasing threats of protectionism in various parts of the world. Against such a backdrop, Budget 2017 did a good job of identifying the pain points of the Indian economy: Farm and rural sectors that comprise the youth, poor and the underprivileged, infrastructure and financial sectors, digital economy, governance and tax administration.
The targeted agricultural credit in FY17-18, at an unprecedented level, should augur well for the farm sector. But experience has shown that public sector banks are invariably drawn to such programmes; we hope the government has been mindful of the stress that the sector is passing through.
The proposal to integrate fruit and vegetable growers with agro-processing units and work on a model law on contract farming shows that the government acknowledges the need of the hour. In the rural sector, the emphasis on a focussed micro plan for sustainable livelihood for every deprived household shows the government recognising what has been good for the economy. Increased allocation towards the Pradhan Mantri Gram Sadak Yojana and the Pradhan Mantri Awas Yojana-Gramin as well as plans to impart new skills to the rural people—mason training to 0.5 million heads by 2022—reflect the government’s ambition to develop the rural economy with the construction of roads and houses.
The plan to leverage information, communication and technology-enabled learning platforms to spread quality education is welcome. Compared to the hackneyed plans of opening more schools, this should produce better results. Plans to set up skill centres that will also impart training in foreign languages will help the youth seek jobs outside the country.
India, with its vast expanse of coastlines, mountains and diversity of culture could be a tourism paradise. This, in turn, could be an employment generator. Emphasis on the sector to leverage its multiplier effect shows some astute thinking on the part of the budget framers.
According infrastructure status to housing was a long-standing demand and the government has made a beginning with the affordable housing sector. The housing sector provides employment to construction labour; hence, apart from the human aspect, the economic aspect of this plan does not go unnoticed. The emphasis on the use of generic medicines is in line with the global trend. We will see how the plan to attract investments in the medical devices sector shapes up with the proposed new regulations, which will be ‘internationally harmonised’. Labour laws have been controversial with critics pointing out that they make doing business tough. Hence, the plan to undertake legislative reforms to simplify, rationalise and amalgamate the existing plethora of labour laws into four essential codes is welcome.
A notable feature of this budget, arising from the merger of the rail and general budget, is a more holistic approach in catering to the infrastructure sector. For instance, the plan for railways to implement end-to-end integrated transport solution for select commodities through partnership with logistics players, who would provide both front- and back-end connectivity. Rolling stocks and practices will be customised to transport perishable goods, especially agricultural products.
The road sector, too, has seen a phenomenal increase in budgetary allocation. The condition of most of the airports in the country is poor. It is refreshing to see that the government has thought of monetising real estate held by the Airport Authority of India to fund airport upgradation.
Overdependence on microwave connectivity as against on optical fibre network was a problem. Increased allocation to the BharatNet Project to reach optical fibre connection to villages was a right move. All-time high allocation for schemes such as M-SIPS and EDF to cater to electronic manufacturing will reassure global players and mobile manufacturers who are keen to set up production facilities in India.
The move to abolish the FIPB (Foreign Investment Promotion Board) from 2017-18 represents a bold move. Dispute resolution in PPP, infrastructure-related construction contracts and public utility contracts was an age-old sore point. It is good that it has been decided to resolve such disputes through an existing legislation, namely the Arbitration and Conciliation Act, 1996.
The idea to merge some of the major central public sector enterprises, notably the oil sector players, to create behemoths capable of competing with some national and international players is a reflection of the principle of ‘minimum government, maximum governance’. Relieving banks of their stressed legacy accounts is sought to be achieved through legislative measures; this explains the lesser allocation to the banking sector on this count compared to the magnitude of the stressed accounts.
Digitalisation of the economy is essential to eradicate corruption and black money. A slew of measures, including amendments to the tax law on disallowance of cash payments, penalising major payments in cash and receipt and payment of donations have been adopted to push towards non-cash dealings. Demonetisation accentuated the need for a big push towards digital.
A new feature is the consolidated outcome budget covering all ministries and departments with the aim to improve accountability of government expenditure.On the taxation front, the budget banks on GST being rolled out by the desired date. In direct taxes, amendments are more in the nature of twists and turns designed to close loopholes. Another way to see this is that our tax laws have achieved some degree of certainty and continuity. Demonetisation affected the lower strata of society more and tweaking in personal taxes is aimed at embalming that strata.
The budget is seeking to achieve most of the growth through the multiplier effect of investments in the construction sector. Perhaps not much can be showcased on the fronts of tax reforms, effects of demonetisation, relieving stress on corporates and the banks. The budget does not have a major leap for any specific sector, but there is a bit for every sector. Perhaps, that was all that could be expected in the current political and economic milieu.The writer is chairman of PricewaterhouseCoopers India.