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Populism or Fiscal Prudence, what has Union Budget 2017 got for India?Overall RATE RATE (0.00)

Feb 01, 2016 become a historic day in Indian politics as the Finance Minister Arun Jaitley merged the Union and Rail Budgets for the first time ever and presented it to the parliament. The general belief is that the FM this time has been able to strike a fine balance between ‘populism’ and ‘fiscal prudence’. On one end, allocating heavy budgets for expediting the progress of rural India and empowering the farmers were the need-of-the-hour priorities for the FM. On the other, there were many major fiscal commitments that did not leave much scope for the FM to sway too far from the roadmap that was laid down for lowering the deficits. The facts presented by the FM suggest that the government has been able to achieve this successfully. That said, it is crucial for India to know the various benefits of the Union Budget 2017.

The FM said GDP would grow at 11.75% in nominal terms in 2018, which would translate into a real growth rate of around 6.75% and inflation of around 5%. According to Jaitley, both these numbers are a reasonable assumption. Let us have a look at the breakup of projected tax collections in the following table:

 

Excise Duties

Expected to yield 5% more than 2016-17

Corporate Taxes

Expected to yield 9.1% more than 2016-17

Service Taxes

Expected to yield 11.1% more than 2016-17

 

These numbers hint towards a modest economic performance. However, income taxes collected from individual taxpayers were projected to rise by 24.9%. The government expects its campaign against black money to have a huge impact on tax compliance, which would help in collecting more taxes. Whether this optimism translates into reality or not, only time will tell.

The major premise behind the various calculations applied by the FM in the Union Budget 2017 is that divestment proceeds would show a sharp rise from Rs. 45,500 crore in revised estimates (RE) for the current year to Rs. 72,500 crore. This would include strategic divestment of Rs. 15,000 crore and Rs. 11,000 crore from listing of insurance firms. Although the food subsidy bill is likely to rise by around Rs. 10,000 crore, fertilizer subsidy would remain the same, with petroleum subsidy likely to fall. This is another vital premise behind the Budget numbers for 2017.

Good news for people of India is that the government is extremely focused and confident to achieve the fiscal deficit target of 3% in 2018-19 since the government has decided in-principle to go with the panel recommendations on fiscal laws. In fact, FM Arun Jaitley said in his Budget speech that he has pegged the fiscal deficit for 2017-18 at 3.2% of GDP. He said the government remains committed to achieve the 3% target by 2019. Moreover, FM emphasized that he ensured strict adherence to fiscal consolidation without any compromise on the public investment front.

Overall, it looks like a good Budget. However, only time would tell how the Budget promises and the accompanying numbers pan out in the coming years.

 

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Written by : blog admin

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