When governments change, priorities change. However, Union budgets prepared immediately after a general election tend to be large on announcements about change rather than real changes in allocations and priorities. This is because there is very little time between election results and budget day to be able to comprehensively change the contours completely.
This time, the election results came on 16 May, and the formation of the central government took another 10 days as this was the first time a sitting state Chief Minister was elected Prime Minister. The delays related to the need for Narendra Modi to hand over power in Gujarat smoothly before moving to Delhi.
Moreover, when the political order changes, as in this general election, the new ministers would not have had the time to familiarise themselves with their own ministries before dealing with the finance ministry on the budget.
The net result is the previous interim budget tends to be the guiding document, with the big changes being largely cosmetic in nature or about things to come in future.
Will the 10 July budget be any different? Will it be more or less what P Chidambaram presented on 17 February (the interim budget), with only the medium-term policy goals being different, and the budget proposals largely remaining tweaked versions of the last UPA budget?
These are what I would expect in the budget to be presented by Arun Jaitley on 10 July:
#1: Marginal changes in the minimum tax-free bracket (Rs 2 lakh now) to reflect higher inflation.
#2: Some changes and increases in the 80C savings limit to boost savings.
#3: Special tax breaks for industry to start investing, including possible quicker depreciation.
#4: Scrapping of some centrally-sponsored schemes and transfer of the resources to states – which will be explained as a push to greater state autonomy.
#5: A restatement of Chidambaram’s fiscal deficit numbers so that the burden of lowering it this year is eased.
#6: A higher disinvestment target than what Chidambaram proposed, thanks to a more buoyant market.
#7: Very few changes to indirect taxes – both excise and customs.
#8: A new deadline for the implementation of the goods and services tax (GST), probably around mid-2015 or 1 April 2016.
#9: Announcement of a new Direct Taxes Code effective from 1 April 2015 – with details to come later.
#10: Higher allocations to education, skill-building, health, and urban schemes. All of Modi’s pet projects – toilets, rural housing, roads, special manufacturing zones - will find a mention in terms of intent, and there will be token allocations, but nothing major. The money and actual details will come later
#11: Possible announcement of a changed, reduced, role for the Planning Commission, with the finance ministry itself being the nodal agency for dealing with state plan outlay. Maybe, even a scrapping of the 12th plan, with focus shifting to annual plans. The distinction between plan and non-plan outlays may be given up, and revenue and capital spending being the only distinction.
#12: NREGA and Land Bills will be tweaked to make them more pro-growth, pro-infrastructure development.
But the bottomline is not much money will be shown for all the pet NDA schemes. In short, the Jaitley budget will probably draw on Chidambaram’s underlying budget because he has had no time to overhaul it.
Over the last 23 years, from 1991 to now, we have seen big changes in the political orientation of new governments in 1991, 1996, 1998, 2004 - and now. But barring 1991, when within a month after the elections Narasimha Rao and Manmohan Singh simply changed the entire direction of the Indian economy – with external bankruptcy concentrating minds wonderfully – no new government has really managed to do all that it wanted to in its very first budget. There is simply too little time.
The hiking of railway fares and freight hikes last week – which was a UPA government proposal – further confirms to us that NDA’s first budget math will not be too different from that of the UPA.
In 2004, when UPA-1 replaced Vajpayee’s NDA, Chidambaram as finance minister paid lip-service to the National Common Minimum Programme (NCMP) agreed between the Congress, the Left and other alliance parties. But the budget made very few sweeping changes in its first attempt: the big changes related to just one or two areas, and not the whole budget.
Chidambaram changed very little on direct taxes, and the key changes related to the introduction of securities transaction tax (STT) on stock exchange transactions and the abolition of long-term capital gains tax. An education cess of 2 percent on all taxes was also introduced for the first time.
Chidambaram explained why he was not making big changes in his budget speech of 8 July 2008: “The government has to shift gears; and even if we are able to do so quickly, it would leave us only about six months to achieve our objectives for this year. We have, therefore, decided to adopt an innovative approach. The Planning Commission has advised the ministries and departments to redefine their priorities and redraw their programmes in accordance with the NCMP. Besides, new programmes or schemes may have to be launched, and old ones restructured. Under the circumstances, it was considered optimal to allow the ongoing programmes to continue until the Planning Commission completes an exhaustive review and reorients the expenditure pattern to conform to the NCMP objectives.”
Chidambaram’s "innovation" was simply to buy time.
On direct taxes, he simply shifted the changes to the next budget. “I am a votary of tax reforms but it would be unwise on my part to attempt to do tax reform in a hurried or piece-meal manner. Seven months from now there will be another Budget, and there will be an occasion to visit the subject of tax reform.”
So, given the short time available, Jaitley is more than likely to do what Chidambaram did in 2004. Make big announcements in directional change, but make only small changes in the actual budget numbers.
No comments:
Post a Comment