Jaitley’s face, Modi’s voice

* Fiscal deficit kept to 3.2%; Markets give the thumbs up; FIPB abolished

* Cash donation cap slashed; Electoral bonds mulled; MGNREGA allocation hiked to ₹48,000 cr

* Boost to rural housing; I-T sops for lowest income slab; BharatNet gets ₹10,000 cr

Prime Minister Narendra Modi and Finance Minister Arun Jaitley on Wednesday combined to deliver a jugalbandi that fused political priorities and economic imperatives producing a melodious tune that had the markets doing a merry jig.

The Union Budget for 2017-18 is a skilfully melded amalgam of reform ideas and proposals that address the needs of the poor and the under-privileged, along with specific measures targeted at revving up the economy.

And Jaitley managed to please the fiscal hawks as well, keeping the deficit at 3.2 per cent (20 basis points higher than the target of three per cent), the revenue deficit at 1.9 per cent (lower than the two per cent target) and reducing government borrowings significantly compared with last year.

These, combined with the absence of any investor-unfriendly proposals, had the market in a thrall. The indices, which were rather somnolent through the entire duration of Jaitley’s 120-minute speech, perked up immediately thereafter and the Sensex ended the day up 1.76 per cent or 485 points.

For those looking for the D-word, there was not much. The Finance Minister chose to glide over both the potential positive and negative fallouts of demonetisation. While he mentioned the possible tax buoyancy in passing, he failed to unveil any measure to relieve the stress on the informal economy.

The Budget presented in Parliament on Wednesday is not ‘big-bang’ by any means nor can it be termed a welfare measure, though the Finance Minister devoted half his speech to addressing the needs of the rural populace. If you look for an over-arching theme you will not find one. Yet, it attempts to address the needs of most constituencies even if some of them, such as the middle-class and India Inc, might have been happier with getting more from the Finance Minister. There are reform measures such as abolition of the Foreign Investment Promotion Board (FIPB), a vestige of the control era; a law to confiscate the assets of economic offenders who flee the country, plan to list PSUs such as IRCTC and IRCON, and banning of cash transactions over ₹3 lakh. Yet, the biggest reform announcement was one that need not have been part of the Budget proposals — political funding, where the Modi imprimatur is clearly evident.

Reforming politics Political parties cannot take donations of more than ₹2,000 in cash any more (compared with ₹20,000 earlier), and the RBI Act is to be amended to facilitate issue of electoral bonds that can be bought from banks through cheque or digital payment.

Modi’s touch is also evident in the efforts to promote a digital economy such as the ₹10,000 crore given for the BharatNet project.

The political and economic notes have been blended with care. Thus, the allocation for the rural work programme (NREGA) is at its highest ever at ₹48,000 crore sending out a clear message of the welfare intent but; the spending is linked to clear deliverables on the ground. The allocation to rural housing — PM Awaas Yojana — is up by a half to ₹23,000 crore with an ambitious target of completing one crore houses by 2019 for the homeless poor. Construction of rural roads has accelerated to 133 km/day from 73 km/day and Jaitley has set aside ₹19,000 crore for this. The objective seems clear: spend on welfare and rural infrastructure but ensure that there are economic benefits.

Tax sops The tax concession to the lowest income slab is also an effort at redistribution of income from the rich to the not-so-rich. Thus while those in the ₹2.5-5 lakh income slab will now see their tax outgo fall by half (tax rate cut from 10 to 5 per cent) those earning between ₹50 lakh and ₹1 crore per annum will now pay more tax due to an additional 10 per cent surcharge.

“We’re largely a tax non-compliant economy,” Jaitley said pointing to how just 1.72 lakh people declared income of over ₹50 lakh and 24 lakh show income of over ₹10 lakh.

Jaitley has been careful in the matter of corporate tax as well. India Inc which was looking for a tax cut might be disappointed but in a move that will probably deliver economic and political benefits to his government, Jaitley slashed the tax rate to 25 per cent for small companies with up to ₹50 crore turnover as of 2015-16. The suit boot ki sarkar slogan will not stick to this proposal given that these are small companies that create more jobs than the big corporates.

Stepping in to boost spending in the absence of private investment, the Finance Minister also raised allocations to Railways, highways and also announced plans to build two more strategic petroleum storages. The biggest disappointment though was the piffling ₹10,000 crore allocation to bank recapitalisation. This made neither political nor economic sense.

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