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Budget 2017 clears all doubts about Modi-Jaitley's economic competence

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Rajiv Kumar
Rajiv KumarFeb 02, 2017 | 09:41

Budget 2017 clears all doubts about Modi-Jaitley's economic competence

The 2017-18 Budget has brought back the cheer to some of us who had begun to doubt the growth and investment-promoting credentials of the Modi-Jaitley duo and started to fear increasing doses of populism in successive Budgets. The common expectation was that this would be a palpably populist Budget in advance of the "electoral semi-final" presently unfolding in five states.

As it turned out, poor Rahul Gandhi and other Opposition leaders could not find a single objectionable element in the Budget that could have overtly improved the BJP’s current electoral prospects. His only charge was that it was a pointless Budget which could not bring the bullet train to India! If only we were living in Lego world!

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Budget has brought back cheer to some of us who had begun to doubt the investment-promoting credentials of the Modi-Jaitley duo.

Employment

The Budget has stuck to the critical tasks at hand of generating employment, promoting private investment, pushing up consumption, improving delivery of subsidies and public services. Most importantly, it attempts a radical cleansing of the economy, necessary for India to get on to a robust growth path with greater equity in an environment of greater transparency, accountability and declining corruption.

The NDA government has learnt some hard lessons from the Vajpayee experience, which saw a conflict between pursuing economic priorities and enhancing electoral prospects. Therefore, it used the previous Budgets to promote inclusion across the widest range of schemes and programmes, including the continuation of MNREGA to which additional resources were allocated, opening of Jan Dhan accounts for promoting financial inclusion, among others.

The Modi-Jaitley duo has hitherto been steadfast in not ceding the left-of-centre space to the Congress and the sundry Opposition. In the present Budget they have boldly displayed their growth and investment credentials, which are critical for boosting economic growth and generating jobs for India’s teeming and aspiring youth.

The finance minister was cognisant of plummeting private corporate investment and non-food credit offtake from commercial banks coming down to a six decade low. The share of investment in the GDP has fallen to below 30 per cent — the lowest in years. Investment needed a boost.

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The FM has not left this to chance or to the dampened animal spirits of investors. Instead, he has chosen to address the problem frontally by ramping up public capital expenditure by as much as 24.5 per cent over last year. To this one must add the Rs 70,000 crore that Railways would raise from non-government sources.

One hopes that higher capital allocation is efficiently utilised for much needed capacity expansion in infrastructure, agriculture and social sectors. This should spur private investment, which will hopefully "crowd in" as a result of the ramped up public capital expenditure.

With RBI keeping a hawk eye on inflation and declining costs of capital as a result of mounting bank deposits post-demonetisation, this Budget may well have moved the Indian economy tantalisingly close to the sweet spot from which it could embark on sustained high growth trajectory with macroeconomic stability and inclusion.

Foreign and domestic investor sentiment will hopefully be further reinforced by the government’s commitment to bringing about a new normal in the use of cash and squeezing out the parallel economy.

By lowering the limit of anonymous cash donations to political parties to Rs 2,000 as recommended by the Election Commission, the Budget has directly attacked the fountainhead of political corruption. By taking this unexpected and bold step, Modi has burnished his credentials for the fight against black money and illegal incomes and a supporter of the honest entrepreneur, professional and ordinary worker.

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Business

There are also other measures for improving the ease-of-doing business. The carry over period for minimum alternate tax credit has been extended to 15 years from 10. Transfer pricing norms for domestic companies have been liberalised. Foreign investment promotion board (FIPB), which had come to signify a hurdle for FDI proposals, has been abolished with 95 per cent of FDI proposal being now allowed through the automatic route.

Most importantly, perhaps, the Budget has slashed the corporate tax rate from 30 per cent to 25 per cent for small and medium enterprise with a turnover of less than Rs 50 crore. These account for 96 per cent of total number of companies and are predominantly responsible for fresh job opportunities. They cover the entire gamut of economic activity, including IT, defence, textiles, leather, light engineering and a very large range of services sectors.

Housing

Employment will also get a boost with the massive push given to affordable housing. This is a labour-intensive sector. Jaitley announced a clutch of measures including infrastructure status for affording housing, higher corpus for refinancing by the NHB, relaxing the definition of affordable housing to 60 sqm except in four metros.

These are over and above interest rate subventions announced by Modi on December 31.

Consumption will rise from the reduction in personal income tax of the lowest taxable category of Rs 2.5 to Rs 5 lakh, from 10 to 5 per cent. Disposable incomes will increase by at least Rs 2,000 per month in this slab and by Rs 12,000 for higher income groups.

I wish though that the FM had taken another step of applying the highest tax rate of 30 per cent to incomes higher than Rs 24 lakh. This would not have even implied a larger revenue loss as it would surely improve compliance and reduce tax avoidance.

The agriculture sector gets a boost with Rs 10 lakh crore being allocated for credit availability for the sector. Farmers will also avail of a 60-day interest payment waiver announced by the PM on December 31. NABARD will enhance its IT capability to monitor and stitch together the 6,300 primary agriculture cooperatives for a seamless flow of credit to farmers.

All in all, this Budget must be lauded by all stakeholders in the economy and also those who want India to be extricated from the quagmire of rising corruption, illegality and resultant criminality.

We may well be on our way to completing the transition to a high middle income economy.

(Courtesy of Mail Today.)

Last updated: February 02, 2017 | 18:12
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