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What Budget 2018 was (and most definitely wasn't)

Bibek DebroyFebruary 2, 2018 | 09:44 IST

It is not surprising that the Union Budget 2018 has been one of the most awaited budgets in the recent history. On the economic side, this Budget is being presented in the backdrop of several developments. The short-term disruption due to the implementation of transformative measures such as GST is fading and the system is becoming increasingly more stable.

Macro data

Recent macro data points out that economic growth has started picking up firmly. However, on the other hand, there are signs of some stress in sectors such as agriculture and banking services. On the political front, 2018 is undeniably an action-packed year. Several large states such as Karnataka, Madhya Pradesh, Chhattisgarh and Rajasthan are going to polls this year. The talk of simultaneous elections is also gathering pace, fuelling to sorts of speculations about the Lok Sabha elections itself.

Naturally, most analysts predicted the Budget to be populist. The government was expected to loosen its purse strings and prioritise political imperatives over reforms and economics. The 2018 Budget clearly belied this popular expectation. The government stayed clear from engaging in any undesirable fiscal adventurism. Instead, it chose to invest its resources in consolidating ongoing reforms and deepening its implementation. Three notable takeaways are discussed below.

One, “enabling” and “empowering” the poor, instead of “doles” and “subsidies”. The finance minister allocated about Rs 14.34 lakh crore for agriculture and rural economy. This might probably be the largest ever allocation for these sectors. Budgetary proposals show that the intent is not to offer “doles” or “subsidies” in the garb of supporting rural economy. The focus instead is to create grounds where rural population can access opportunities for development and can stand on their own feet without seeking government’s assistance.

For this, infrastructure development programmes such as irrigation projects, transport connectivity (rural roads under Pradhan Mantri Gram Sadak Yojana), improving market linkages (expanding eNational Agriculture Market network), electricity linkages (Saubhagya), etc, are being expedited. Major initiatives to uplift living standards of rural population such as Swachh Bharat Mission, Ujjawala Yojana and Pradhan Mantri Awas Yojana are being accorded high priority.

A National Health Protection Scheme has also been announced to provide adequate financial cover to poor families for secondary and tertiary care hospitalisation. Steps have been proposed to provide adequate financial resources including institutional credit to the rural economy. Several new proposals have been announced to facilitate an increase in farmer’s income. The list of course is not exhaustive. But these measures show that the push clearly is to “enable” and “empower” rural populace and create opportunities for development at their doorsteps.

Fiscal consolidation

Two, infrastructure creation and fiscal consolidation. Creating modern infrastructure and fiscal consolidation has been a priority for the government ever since it was sworn in office. This year has been no different. For infrastructure creation, the Budget proposes an all-time high allocation of about Rs 6 lakh crore. Interestingly, the Budget articulates an increased shift towards leveraging off-balance sheet resources and monetising operational assets to generate funds for the infrastructure sector.

On the fiscal front, the government has effectively chosen to continue the path of fiscal prudence despite going for a strong investment push in infrastructure and rural sectors. This is remarkable as the target comes amidst a reduced administrative space within the indirect taxation landscape (primarily under the GST Council) coupled with increased devolution to states on account of GST transfers.

Three, flagging off taxation compliance behaviour. Another important message in the Budget speech pertains to the prevailing taxation compliance behaviour in the country. The speech makes two observations. The first relates to the data for presumptive income scheme for small traders, entrepreneurs and professionals.

To quote the finance minister, “The department has received 44.72 lakh returns for assessment year 2017-18 from individual, HUF (Hindu Undivided Family) and firms with a meagre average turnover of Rs 17.97 lakh and an average tax payment of Ra 7,000 only. The tax compliance behaviour of professionals is no better; the department has received 5.68 lakh returns under the presumptive income scheme for assessment year 2017-18 with average gross receipts of Rs 5.73 lakh only. The average tax paid by them is only Rs 35,000.”

Policy instrument

The second relates to the data for individuals. To quote the finance minister, “There is a general perception in the society that individual business persons have better income as compared to salaried class. However, income tax data analysis suggests that major portion of the personal income-tax collection comes from the salaried class.

For assessment year 2016- 17, 1.89 crore salaried individuals have filed their returns and have paid total tax of Rs 1.44 lakh crore which works out to an average tax payment of Rs 76,306 per individual salaried taxpayer. As against this, 1.88 crore individual business taxpayers including professionals, who filed their returns for the same assessment year, paid a total tax of Rs 48,000 crore which works out to an average tax payment of Rs 25,753 per individual business taxpayer.”

The two observations above are important as they show the extent of tax evasion malaise across the country. Is this a warning of things to come? We do not know. The government is not wary of taking unpopular measures against those who indulge in such corrupt and unethical practices. In any case, Budget is not the right platform to address such legacy issues. It is a policy instrument to articulate the socio-economic priorities of the government and, from that perspective, the development philosophy of “sabka saath sabka vikas” also reflects in budgetary allocations and announcements.

(Courtesy of Mail Today)

Also read: Income tax cut to relief for farmers: What Budget 2018 is likely to bring

Last updated: February 02, 2018 | 13:20
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