Business
A budget for the United Federation of India (Column: Active Voice)
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By Amit Kapoor Finance Minister Arun Jaitley on February 28 delivered a budget that
will go down as one of the best since liberalization began in 1991. It
took stock of India’s present set of challenges and accordingly adjusted
the priorities and solutions. Six salient points reflect the
government’s economic thinking and strategy.
First, the
budget has struck to the recommendations of the Fourteenth Finance
Commission’s report on recalibrating India's fiscal architecture in
India with a massive increase in devolution to states. It will be in
2015-16 to the tune of Rs.5.24 lakh crore (42 percent of the divisible
pool) compared to Rs. 3.38 lakh crore (32 percent of the divisible pool)
as per the revised estimates for 2014-15. Another Rs. 3.04 lakh crore
would be transferred by way of grants and plan transfers thus taking the
total allocation to states at an all-time high of 62 percent of the
total tax receipts. Implicit in this is the belief that cooperative
federalism with a greater devolution to states will hold the key to the
varied developmental challenges that each of these states faces.
Second,
the budget, in spite of the lack of fiscal space, has increased
allocations to India’s creaky infrastructure to the tune of Rs.70,000
crore. The creation of a National Investment and Infrastructure Fund
(NIIF) that will enable infrastructure finance companies leverage the
equity provided to them via debt will help boost the investments in
infrastructure. Similarly the permission for tax-free infrastructure
bonds for the projects in the rail, road and irrigation sectors will
enable infrastructure development that will provide the much-needed push
to the economy.
The government has proposed to set up five new
ultra mega power projects, each of 4,000 MW. These are planned in
plug-and-play mode where clearances and linkages will be in place before
the project is awarded by a transparent auction system. All these are
commendable steps to improve India’s decrepit/at places absent
infrastructure.
Third, there are several institutional changes
that have been proposed. This includes a Public Debt Management Agency
(PDMA) that will bring both India’s external borrowings and domestic
debt under one roof. In addition, the plan to merge the Forward Markets
Commission with SEBI will have a soothing influence on the wild
speculation in the market. The proposal to enact a comprehensive new law
on black money, one that seems rigorous in intent, will aid in
deterring corruption - atleast through formal channels. Also, the
proposal to create a National Agricultural Market (NAM) will have an
effect of moderating price rises.
Fourth, the budget tries to
provide a stable, predictable and globally competitive tax policy regime
for the all sections of society, particularly the corporate sector,
over the next four to five years. The tax rates for corporates will be
lessened over the next four years from the earlier 30 percent to 25
percent. This is in line with the commitment to make it easier for
corporates and investors to do business in India vis-Ã -vis other Asian
economies. The commitment is also reflected in the government’s launch
of an e-biz portal that integrates 14 regulatory permissions at one
source. Similarly, the wealth tax has been abolished with an additional
surcharge put in place for the income of the super-rich. Also, the focus
on implementation of GST from the next year means that India will be a
unified market - one that will boost its growth and competitiveness.
Fifth,
the budget has done well to focus on social progress of India’s
citizens. The JAM Number Trinity - Jan Dhan accounts, Aadhar card and
mobile phones - as mentioned in the economic survey aims to cut down
leakages while maintaining targeted subsidies. Similarly, the schemes
for insurance will provide a safety net for most people, including the
workforce and the elderly. The shift to market-based solutions is
evident here and reflective of the government's general approach in
trying to solve problems through the the market route. For promoting
cleanliness, the government has called for 100 percent exemption for
donations made to Swachch Bharat Kosh and the Clean Ganga Fund.
Finally,
in line with the social objectives, the budget addresses the challenges
to education, entrepreneurship and skill development in India. The
government seems keen to invest in education by opening up institutions
of higher learning like IITs IIMs and AIIMS in select states. This is in
line with the view that each state should have one major central
institution. The government has also proposed creation of a Micro Units
Development Refinance Agency (MUDRA) Bank, with a corpus of Rs 20,000
Crore that aims to provide credit to hard-working entrepreneurs at the
bottom of the pyramid. This is meant to increase the confidence of
young, educated and aspiring Indians who can now aim to become
first-generation entrepreneurs. The announcement for launching a
National Skills Mission through the skill development and
entrepreneurship ministry will cater to skilling the young.
All
these points are indicative that the budget has factored into account
the reality of India and has accordingly devised an economic strategy.
It also signals the focus towards decentralized federal governance, a
stable and business-friendly tax policy and market-oriented solutions to
social and economic problems. The budget is visionary and pragmatic in
content and form and touches on all facets of life of citizens and has
indicated ways of transforming them. The main challenge will lie in
making people understand the long-term implications and the
implementation of the budget.
(The article is co-authored with
Sankalp Sharma, Senior Researcher at the Institute for Competitiveness,
India. Amit Kapoor is Chair, Institute for Competitiveness & Editor
of Thinkers. The views expressed are personal. He can be reached at
[email protected] and tweets @kautiliya)