Union Budget 2017-18: good, even if not inspiring
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:
- The push to make the economy more "Organised'"
- "Subsidy reforms", especially the adoption of technology / Aadhar
- "Infrastructure" creation and urbanisation
- "Soft infrastructure" creation
- "A simple, firm and pragmatic government
- 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.