Budget 2015: The Modi-Jaitley team have done a terrific job

I was full of trepidation because of the huge expectations from the Budget. This was clearly a make or break Budget for the Modi government as it would have lost the benefit of the doubt, which it has enjoyed until now. Moreover, the fear was that with the electoral outcome in Delhi, the government could get scared and veer away from the path of reforms. It is indeed to the credit of the government that they have proven our fears to be unfounded.

The Budget is replete with forward looking and reformist measures, whose cumulative positive impact will be significant in the coming years. For me the five most important features of the Budget are:

First, its emphasis on infrastructure investment by increasing budgetary allocation by a whopping Rs 70,000 crore. This is buttressed by allocating Rs 20,000 crore as seed capital for National Investment and Infrastructure Fund and issuing of tax free infrastructure bonds for rail, road and irrigation. This infrastructure focus was necessary for promoting the "Make In India" program.

Second, initiating measures against the generation of black money and the related menace of widespread use of cash in our economy. These include incentives for using credit/debit cards combined with disincentives for cash transactions; stricter provisions and penalties against the use of cash in the construction industry, which is notorious for it; and the proposed stringent law against black money specially for wealth stashed abroad.

The provisions for a ten year rigorous imprisonment, making the offence non-compoundable; denial of access to the Settlement Commission; and a penalty of 300 per cent will be a huge deterrent and surely minimise the outflow of funds abroad.

Investment

Third, the Budget's focus on improving the business environment especially for the micro, small and medium enterprises (MSME) is laudable. This includes the setting up of the MUDRA bank, with seed capital of Rs 20,000 crore and a Rs 3,000 crore credit guarantee corpus for improving access to formal financing for the 57 million MSMEs.

In addition the finance minister announced the launching of an e-biz portal which integrates 14 regulatory permissions at one source. Further, an Expert Committee is being set up to suggest a draft legislation for replacing multiple prior permissions with a pre-existing regulatory mechanism. This will greatly reduce the procedural delays and regulatory complexities whose burden fell disproportionately on the MSMEs.

Fourth, the finance minister has shown that he is not beholden to any fiscal dogma and has his attention focused sharply on the need to raise investment. He has demonstrated this by opting for a more moderate glide path for meeting the medium term fiscal deficit goal of 3 per cent of GDP. This will now be achieved over three instead of two years as earlier targeted. Accordingly the fiscal deficit next year will be pegged at 3.9 per cent, giving the government greater fiscal space to make the much needed investments in infrastructure and agriculture.

Fifth, the finance minister accepted my suggestion to give the workers in smaller organisations the option to move out of the EPFO to New Pension schemes and to choose medical insurance in place of compulsorily registering under the ESI.

The importance of these reforms in formalising the informal sector and slowing down the expansion of contract labour in Indian industry. This is the first important step in eliminating the unacceptable dualism that currently characterises Indian industry.

The Budget has also given 1st April 2016 as the fixed date for the inception of the Goods and Service Tax. It has raised service tax to 14 per cent in an attempt to bring it line with the likely GST rate.

Taxation

It has also announced a phased reduction in the rate of corporate tax from the present 30 to 25 per cent along with the elimination of exemptions.

The Budget has thus provided long term stability in the tax regime. The elimination of exemptions will minimise the discretionary behaviour of the tax officials and thereby reduce the number of tax disputes, which today account for a massive Rs 4.5 lakh crore in locked up revenues.

There are several other reform suggestions tucked away in the speech. These include the move towards establishing a Holding Company for Public Sector Banks; setting up a Public Debt Management Agency and taking the function out of the RBI; moving towards a monetary policy committee for bringing the RBI and the government in sync; reduction of tax rate on royalty payments from 25 to 10 per cent to encourage younger entrepreneurs who are looking for new technology; and doing away with the obnoxious wealth tax whose administration costs were surely larger than the measly Rs 1,008 crore it garnered as revenues;

Growth

That the Budget has not disappointed, despite the sky high expectations, is in itself creditable. More creditable is that it has not succumbed to populism despite BJP's loss in Delhi elections and the forthcoming Bihar elections. The Modi-Jaitley (MJ) team has done well to make this a growth and investment oriented Budget while at the same time retaining and indeed increasing outlays on social welfare measures as reflected in the highest ever allocation of Rs 34,699 crore for MNREGA.

Therefore, the Budget's biggest achievement is to counter the widespread perception of an irresolvable trade-off between promoting growth and enhancing public welfare. The Budget represents one of the boldest, though understated, and comprehensive attempts at giving a new direction to not only the fiscal regime but indeed to the economy