Budget 2017-18. Budget 2017-18: Mission Bharat

The big picture in this Budget is actually a series of small pictures. While there is a sense of continuity in the sharp focus on unsung India and the digitisation and transparency thrusts, we also get doses of incrementalism, some judicious give-and-take on personal taxes and, most importantly, fiscal rectitude.

There is no disruption; nor is there a lack of focus on long-term growth triggers. It’s also good to see the Government sweating technology, especially the intention to use Big Data to decipher the humongous cash deposits seen after demonetisation. That, and digitisation, are parts the sum of which will be unprecedented transaction trails — including in the important constituency of election funding — in the economy that will improve India’s rather ordinary tax-to-GDP ratio. Overall, the announcements are at par for the course given the limited fiscal wiggle room, the seismic changes afoot both locally and globally, and the imminence of the GST regime.

The Government continues to tread the path of fiscal consolidation. This will yield benefits in terms of lower interest rates — so necessary now — and improve monetary and fiscal policy coordination. Looking ahead, this will also open the door for another rate cut by the Reserve Bank of India in its forthcoming monetary policy review.

It is great to see the steadfast focus on Bharat — rural, farm and the poor — which underscores a holistic approach. Yet, subsidies are being kept under a tight leash at 1.4 per cent of the GDP for next fiscal, or 10 basis points lower than the current fiscal. It’s a credible arithmetic, and we estimate that the provision for fertiliser and petroleum subsidy would ensure that there are no carry-forwards to next year and all pending receivables are paid out.

However, the capital allocated to public sector banks at ₹10,000 crore remains woefully short and will impact their ability to finance growth as the economy grinds up. That’s why efforts to deepen India’s corporate bond market need to continue parallelly. We could also see an acceleration in the shift in market share to private sector banks and non-bank finance companies. To be sure, boosters to consumption are conspicuous by their absence, especially given the slowdown in private consumption after demonetisation. That was necessary to boost capacity utilisation and business confidence and revive the investment cycle.

In infrastructure, the focus seems unambiguously on transportation — railways, metro and roads. That’s salutary for the strong multiplier effect it has on the economy. The three sub-sectors have a relatively higher component of construction activity, which, in turn, has one of the highest employment intensities.

All that, along with the push to affordable housing (infrastructure status will facilitate entry of long-only funds) and irrigation, should improve fledgling demand in core sectors such as cement and steel.

But one source of demand for housing — investors — are in a cleft stick; there is a restriction on how much loss from house property can be set off against any income. That would put pressure on capital values. It was good to see the cut in corporate tax by 5 per cent for MSMEs — the heart and soul of job creation and industrial enterprise. But the additional cash can serve both as an employment generator and an economic multiplier only if it is adequately leveraged.

Problem is, nine out of 10 MSMEs don’t have access to formal credit; so it will be difficult for them to leverage because subsidy allocation for performance and credit rating scheme has been slashed by 95 per cent.

The writer is the MD and CEO of CRISIL