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Union Budget 2017-18: good, even if not inspiring

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02 February 2017

The finnce minister delivered an elaborate and meticulous Budget, mostly  within  stated  policies.  It laboured more than it inspired. India still   awaits   a   transformative   and  inspiring  follow-through  after demonetisation. By Dipen Sheth, head, institutinal research, HDFC Securities

Mr  Jaitley  has  yet  again  delivered an elaborate and meticulous Budget, mostly  within  stated  policies.  It laboured more than it inspired. India still   awaits   a   transformative   and  inspiring  follow-through  after demonetisation.

The  Union  Budget FY18 is sufficiently powered (to accelerate the creation of both hard and soft public infrastructure), pragmatically constructed (by the  mandarins  of  North  Block,  who  have  adopted  a  revenue and capital expenditure  format)  and  rightfully  leans  towards  'Bharat' rather than 'India'  with  higher spends on agriculture, rural and social welfare, small housing,  SME  and  vulnerable  segment  relief. 

This stance will pull up median  incomes  (and  mass confidence) quicker than the arithmetical mean,which is quite apt for India's skewed demographics.

To rewind a bit, we had hoped to see the following six pillars (or themes) in this year's Budget:

  1. The push to make the economy more "Organised'"
  2. "Subsidy reforms", especially the adoption of technology / Aadhar
  3. "Infrastructure" creation and urbanisation
  4. "Soft infrastructure" creation
  5. "A simple, firm and pragmatic government
  6. Rapid  adoption  of "Technology" to improve speed and effectiveness of governance handling

To  be  fair,  Mr  Jaitley has scored moderately well across this list. But nowhere  has  he hit the boundaries that could have brought the audience to its  feet  in  applause.  Not  one  brave  new  measure  cashed  in  on the mass-support  for  the  politically  risky  move  of  demonetisation.

Beedi barons,  rich farmers and smaller parts of the informal (cash) economy will breathe  a  bit  easier  for now. There is still some time left for them to enjoy their direct and indirect rents.

On  the  brighter  side,  the  fiscal discipline is praiseworthy and subtly nudges  the RBI to consider a rate cut in the upcoming policy. The decision to  abolish  the FIPB and the conscious decision not to increase the number of  Central Schemes are confirmations of this government's rational intent.

SMEs  will  benefit  from  the  (small)  income  tax  relief  and  so  will individuals  in the first taxable bracket of Rs 250-500k. Marketmen reacted with  glee  to  the  absence  of  LTCG and the reliefs for FPIs. Corporates mostly got indirect benefits only.

This  Budget  has  come in the wake of the demonetisation-induced  shock to economic  activity.  It rightly seeks to provide fiscal and policy stimulus to small-ticket economic activity.

While the intent to widen the tax net is commendable,  the results may not be easily forthcoming as soon as aspired.

We  see  moderate  risk  to  direct  tax  collections, and hence, to fiscal discipline (or capital expenditure) as the year progresses. Global factors, as  always, will throw in uncertainty.





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