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Indian Budget 2017: Old core, new essence

Feb 10, 2017

The 87th edition of the Indian Budget 2017 scores many firsts, writes Naina Gautam, a Delhi based researcher.

New Delhi: The 87th budget with 10-themes by an emerging Indian economy stomped many old traditional processes, and came up with a new roadmap for the presentation of the budget.

Some of the major changes: The 87th budget was an Outcome Budget (it is likely to comprise scheme- or project-wise outlays for all central ministries, departments and organisations); the railway budget (a colonial legacy) was merged with the main budget; the distinction between plan and non-plan expenditure was dissolved; data of only two quarters was used for the budget; and most importantly the date of presentation was advanced to 1st February.

The government managed to come up with many ‘firsts’ in the backdrop of demonetization and a dream for digital economy, which has slowed down the economy. Though it is presumed to be a temporary slowdown, but it has turned the cash-based economy upside down. The problems faced range from unemployment, reverse migration, cash crunch leading to less cyclical investments, and loss of lives.

It has been repeatedly vowed that government’s experiment with demonetization comes packed with the intention of curbing omnipresence of black money and the impacts of it on the country. It should be noted that demonetization did not unfold abruptly, but few schemes like Income Declaration Scheme were the prelude to it. Despite the brouhaha about demonetization, international institutions like the World Bank and the IMF project high growth for the country, which is a reassurance to the supporters of demonetization.

Considering that the demonetization caused slowdown in the economy, an expansionary fiscal policy was expected in the budget to deal with negative aspects of it but instead a fiscal contradictory option was chosen as can be seen in the reduced expenditure GDP ratio.

To deal with stagnancy, this budget attempts to make conducive environment for investment. The Foreign Investment Promotion Board has been disbanded, income tax has been reduced from 30% to 25% for micro, small and medium enterprises, and much discussed Goods and Services Tax (GST) -- one nation, one tax policy -- will be soon operational.

Embarking on the path of reforms to fasten the economy will not be an easy task as inherent problems are enveloped in layers of the economy. For example, banking sector has enormous stress of Non-Performing Assets, wilful defaulters, presence of previous debt leading to less space for the current year, chit fund scams, etc. In terms of human capital, the education sector has not been performing well which can be observed in the recent ASER 2016 Report. Despite it, the allotment for Sarva Shiksha Abhiyan has seen a modest increase of Rs. 1,000 crore.

Though the budget has tried to deal with a lot of problems in its own way like the overall allocation for the health sector increasing by 27%, but this is not enough given the abysmal condition of health indicators. It needs to be at least increased to 2.5% of GDP as contended by experts. Presently Indian spending on health is less than 2% (lowest among BRIC and SAARC countries).

Similarly, an increased dependence on cess is also observed in the budget, though it is increased revenue for the government but it does go against the spirit of cooperative federalism as the Centre does not share cess with the States. Thus, it is imperative for long term benefits to have the spirit of ‘Sabka Saath, Sabka Vikas’ (here states and centre together) as the nation grows when states grow.

(The report is partly based on a panel discussion on the Union budget titled "What do the numbers tell?", which was organised by Centre for Budget and Government Accountability (CBGA), an NGO, on 2nd February 2017 in New Delhi. The  panelists included Rathin Roy, Director National Institute  of Public Finance and Policy, Renu Kohli, who has previously worked with International Monetary Fund and Reserve Bank of India, Yogendra Yadav, founder of political party Swaraj India, Annie Raja, General Secretory of  National Federation of Indian Women.)

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