The arithmetic of the budget

Yashwant Sinha

Budget making is a complex exercise, especially in a country like India. Therefore, the parameters to judge the annual budget are also many. For me, the arithmetic of the budget is the first. According to the statements made by the Prime Minister and the Finance Minister, one expected the fiscal deficit targets to be adhered to. However the Finance Minister has extended it from two to three years. Thus, the reduction in fiscal deficit between this year and the next is going to be only twenty basis points and in revenue deficit, only ten basis points. As the author of the Fiscal Responsibility and Budget Management Act, I am a little disappointed. As far as tax revenues are concerned, the Finance Minister has not been adventurous. In budget estimates for 2015-16, he has generally kept close to the revised estimates and not the highly inflated budget estimates of this year. It is on the expenditure side that one sees some interesting figures.

The Finance Commission’s recommendation of raising the share of States in the divisible pool of Central taxes, from 32 per cent to 42 per cent has been cleverly managed. The States’ share in absolute numbers, BE to BE, has gone up from this year to the next by around Rs.1.36 lakh crore. At the same time, the Central plan assistance to the States has gone down from Rs.3,38,000 crore to Rs.2,05,000 crore. Therefore, the two cancel each other out. Thus, the net additional resources transferred to the States, including States’ share of taxes and duties, non-Plan grants and loans, Central assistance to State plans, assistance for Central and Centrally-sponsored schemes, is only Rs.64,000 crore in 2015-16.

On the expenditure side, I expected the Finance Minister to deal with the Expenditure Management Commission’s report, the Shanta Kumar Committee report on food sector management and the rationalisation of Central and Centrally sponsored schemes in his speech. We will have to wait for that.

Growth impulses

The second aspect of the Budget that one should look at is that of growth impulses. There are plenty of them in the budget. The emphasis on infrastructure development is well placed. The allocation of Rs.70,000 crore, the setting up of the National Investment and Infrastructure Fund with an annual flow of Rs.20,000 crore, tax free infrastructure bonds for projects in the rail, road and irrigation sectors, revitalisation of the PPP mode, and the Atal Innovation Mission, concessions to the IT industry, incubation centres to support start-ups, corporatisation of ports, improvement in the ease of doing business, resources that will become available through the monetisation of gold, and skill development programmes will all go a long way in providing much-needed impetus to this sector. However, I wish that the Finance Minister had devoted a sentence or two about unlocking the pending projects in the infrastructure sector mentioned in the Economic Survey.

I was also a little disappointed at the allocation of only Rs.5,300 crore for the Pradhan Mantri Krishi Sinchai Yojna. This is a game-changing idea and needed greater attention and larger allocation.

Employment avenues

The third aspect of the Budget relates to the livelihood issue. Making an allocation for MGNREGA is not enough without drastically reforming MGNREGA especially after what the Prime Minister had to say about it in the Lok Sabha the other day. There is no doubt that skill development and growth in economy generally will create enormous employment opportunities in the country in the days to come. As far as the quality of life issues are concerned, a vision for 2022 has been included in this budget. It would have been better if the target for 2015-16 had also been separately mentioned. A distant goal is always less credible.

The Budget is strong on the social sector side as it moves from Jan Dhan to Jan Suraksha and a functional social security system for all Indians.

On the taxation side, what is a little disappointing is there being no change in the rate of personal income tax. The Finance Minister would have done well to raise the exemption limit of personal income tax to Rs.3,00,000 from Rs.2,50,000. This would have made the reduction in corporate tax from 30 per cent to 25 per cent more acceptable to the people. Various measures have been included in the budget to promote savings but an increase in the rebate on income tax on interest income would have been welcome. The housing sector could have received a further boost if the income tax concession on interest paid had been raised from to Rs.2,50,00 from Rs.2,00,000. The tightening of provisions relating to black money and penal provisions were long overdue and welcome. I still believe that the Direct Taxes Code is needed and should not be dumped.

The Finance Minister has set a challenging target of operationalising GST from April 1, 2016. Not only the government of India but also State governments will have to move rapidly to stick to this deadline. The differential rate of tax on service tax and central excise has not been very helpful.

On the whole, like the Railway budget, the general budget is also a vision document. The key will be to provide flesh and blood to the vision and implement it.

(Yashwant Sinha is former Finance Minister)