The Big Bang theory

If one was looking at a Big Bang or a radical departure, they will be hard to find in Arun Jaitley’s maiden Budget. It has targeted a modest ₹43,425 crore from disinvestment in public sector undertakings and, as widely expected, done little to phase out wasteful subsidies. The Centre’s total subsidy bill is pegged at ₹260,658 crore, almost ₹5,150 crore more than the revised estimates for 2013-14. The increase in foreign direct investment cap from 26 to 49 per cent in insurance and defence manufacturing are cautious steps forward. And the personal tax concessions are a tad disappointing given the kind of expectations raised in the run-up to the Budget. Should we have expected more from a new Government that does not have to worry about its survival?

But this is the first Budget of a Government that is barely 45 days old. One must, therefore, take into account the time constraints in framing it before making extreme judgments. The fiscal deficit estimate of 4.1 per cent for 2014-15 may seem ambitious, given the rather optimistic assumption of an 18 per cent gross tax revenue growth in a slowdown scenario. Yet, by setting a “difficult” target and further reducing it to 3 per cent by 2016-17, it signals a commitment to fiscal consolidation in what is, as Jaitley himself described, a “directional” exercise. The promise of enacting a legislation enabling the introduction of Goods and Services Tax, setting up an Expenditure Management Commission to review all Government spending, and diluting the Centre’s stakes in public sector banks to allow them to raise additional capital for meeting Basel-III norms point towards the broad reform path over the next year or two. The market and some in the corporate sector may have reacted as if his remarks on retrospective taxation fell short of expectations. But Jaitley’s promise that such a tax will not be slapped randomly and that all fresh cases of indirect taxation would be put up before a committee should assuage the investor community.

Besides, the Budget has some positive proposals even for the near term. Allowing a 15 per cent deduction on annual investments above ₹25 crore in plant and machinery for the next three years — which can be set off against profits for computing tax — is an incentive for manufacturing firms to go ahead with their capex plans. This, along with the sops for housing (liberalising terms for attracting foreign investment, providing tax pass-through status for Real Estate Investment Trusts) and a stepped-up allocation for National Highways Authority of India and State road projects of ₹38,000 crore), are needed at a time when the economy is desperately starved of investments. This is a Budget that needs to be allowed time to work and must be followed by other, more radical measures, on the same directional plane, once the economy is showing signs of getting back on its feet. This is when Arun Jaitley will need to deliver on the promise of the Big Bang.

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