One of the signs of a well-functioning real economy is that the government budget shouldn’t matter as much. Sure, the government’s spending and taxation plan has a big impact on the economy.
However, the annual government exercise should not drastically alter the economy or industry sectors every year.
For once, we had a budget in 2017 that avoided all that. We finally had a budget that focused on the big-picture basics. In anticipation of the GST, the FM avoided the dozens of excise and other indirect tax rate changes done every year. It inevitably led to newsrooms filled with industry experts talking about the sops or stick they received in the year.
Hence, we finally did not have a budget that made the FM resemble a combination of Santa Claus and a strict headmaster, depending on whether you gained from the budget or lost.
For once, there is predictability in the way business is done in India, and rates and duties don’t change on an annual basis. In this way, the budget’s biggest achievement was in fact what it did not do, which is to tinker around too much.
So what did the 2017 budget actually focus on? Of the various aspects three stand out. One, the government wants more FDI and realises its importance — both for job creation and growth. Frankly, without lots of FDI, there is little hope for massive job creation. Unfortunately, FDI players are a demanding lot.
They need stable rules, attractive tax rates, low political risk, global competitiveness and less red tape. If they don’t get this, FDI simply moves to other places. The abolishment of FIPB is a step to remove red tape, and sends a clear sign that we need FDI.
Two, the budget reduced tax rates for companies with turnover of less than Rs 50 crore to 25%. This is a welcome step for SMEs, the mini-engines of our economy (and also the biggest tax evaders). The FM hopes this move will make SMEs more tax-compliant, and increase their profits and growth prospects.
While this step is welcome, ignoring large corporates in the tax reductions may not be the best idea. In line with the desire to get FDI, we need to make corporate tax rates competitive with the Asia-Pacific region (by the FM’s own words in previous budgets).
To ignore large corporates, or to make them pay more in tax will: a) discourage big companies from investing in India, and b)
encourage tax evaders to stay under the Rs 50 crore limit. Perhaps the government can reconsider this one.
Three, in what is perhaps the most significant move, is the slew of measures announced to clean up electoral funding. The reduction of cash donations to parties from Rs 20,000 to Rs 2,000 and the setting up of political donation bonds (to mask the donor’s political affiliation, while still keeping the transaction in white) are two bold, big moves.
While the measures are limited in their effectiveness, they are still unprecedented. No sitting government in recent memory has tied its own hands and shunned easy access to cash for its political party. The fact that donations of Rs 2,000 can still be in the anonymous head provides scope for misuse (say hundreds of fictitious “Ram Lal”s being listed to divide up big amounts), the reforms are a step in the right direction. We do need to do more to get the electoral funding sources completely right, but incremental change is better than no change.
The budget did cover the other usual aspects — spending on infrastructure, rural programmes and other welfare schemes. However, overall the budget this time was less an act of tinkering around but more about policy and strategic direction, which is a good thing.
The best budgets are those that have a few good ideas, no nasty surprises and letting business go on as usual. The 2017 budget is one of the few budgets that managed to achieve that. It is a budget that indicates India might finally be growing up to be a mature and stable economy
February 5, 2017 ()