The budget has become a meaningless exercise with dicey figures and unkept promises.
Within a week of the presentation of the Union Budget for 2015–16, the fizz that we saw around it, in a gushing media, has gone flat. When the layers of packaging are removed, there is little in the core. There are only incentives and promises to powerful interests, and mirages for the rest. That is how it has been in the age of media hype and Union Finance Minister Arun Jaitley’s second budget is not very different from the smoke and mirrors that have come over the years to mark the central government’s annual financial statement.
An intriguing question is the shape Budget 2015 may have taken if the Bharatiya Janata Party had not been brought to earth when it was routed in the Delhi assembly polls. Would there have been “big bang reforms,” whatever that may mean other than a large-scale withdrawal of the state from the public sphere and freedom to employers to hire and dismiss workers as they wish? If, perhaps, there is one philosophy underlying this budget, it is a reaffirmation of the Narendra Modi government’s belief that the best driver of growth is the private corporate sector (PCS), with the foreign investor having pride of place; the government and public sector have a role only in the short term. The PCS — both Indian and foreign — had demanded much more from the budget, but enough has been given. If we ignore the irritants of minor increases in indirect taxes and the new 2% surcharge on incomes higher than Rs 1 crore, what we have is the promise to reduce the corporate tax rate from 30% to 25% over four years and a simultaneous reduction in exemptions. This will be implemented from 2016–17 onwards, but is enough to whet appetites because experience shows that exemptions never end. Like with many aspects of the now-abandoned Direct Tax Code, the PCS will be successful in having the rates reduced with a minimal removal of exemptions, and the effective rate may then rest below 25%.
For the foreign investor, there is more. The General Anti-Avoidance Rule (GAAR), meant to prevent tax avoidance, especially in the form of transfers to tax havens, announced in the 2012–13 Budget, stands further postponed. These were pushed forward to 2015 following a huge outcry by foreign companies in 2012, and intensive lobbying has pushed them further ahead to 2017. Other measures for foreign investors include changes in processes and rules which reduce the tax burden and offer more incentives. The Modi government has never made a secret of its desire to woo and please the foreign investor; Budget 2015 goes further in that direction.
If there is one positive feature of Budget 2015, it is the decision to relax the self-imposed constraint on the fiscal deficit and aim for a target of 3.9% of gross domestic product (GDP) in 2015–16 (as against the earlier target of 3.6% of GDP). The finance minister has accepted that corporate India, overleveraged as it is, will not be able to drive investment right now. To make up for the slack, the central plan for 2015–16 is budgeted for a massive 34% jump in outlay (mainly in railways, roads and power). As in the past, the larger contribution (53%) will come from public sector undertakings (PSU) which will draw on their internal resources, and not from the central government. Can the PSUs — targeted for a disinvestment programme in 2015–16 and often operating without chairpersons — oversee such a large investment programme?
A related question: why did the central government take so long to discover the virtue of providing a stimulus? Indeed, in 2014–15 it has done exactly the opposite. Plan expenditure in the current fiscal is expected to end up 18.6% less than budgeted, as sector after sector has been put under the axe. Why? All tax revenues — corporate, personal income, excise, customs and service — have been less than expected. So with the fiscal deficit target of 4.1% of GDP in 2014–15 sacrosanct, the centre has