A Balanced Budget That Plays It Safe

By Kiran Mazumdar Shaw – CMD, Biocon

Finance Minister Arun Jaitley has delivered a Budget that ticks several boxes. The Budget focused on several of the economic and social goals that the Modi government has been pursuing such as attracting foreign direct investment, reducing black money in the economy, skilling the youth of the country, boosting rural infrastructure, encouraging medium and small enterprises (MSMEs) and creating a digital economy.

The government’s demonetisation move just a couple of months ago had raised expectations of a bold, game-changing budget. The Finance Minister, however, presented a balanced budget and operated with fiscal prudence within his zone of comfort. The upsides provided by the impending GST implementation as well as imminent remonetisation perhaps explain this cautious approach. There were certainly no negative surprises which pleased the stock market, with the Sensex responding with a nearly 500-point rally.

Fiscal Prudence

Given the rising crude oil prices and the challenges on the revenue front, the finance minister decided to balance between growth expectations and fiscal prudence. He therefore pegged the fiscal deficit for the next fiscal at 3.2% of GDP and reiterated his commitment to achieving 3% in the next year.

Abolition of FIPB

The decision to abolish the FIPB is a good step and shows India’s openness to FDI at a time when protectionism is increasing around the world. The Modi government had earlier taken several initiatives to attract more foreign capital into the country, including easing FDI caps across several sectors. These measures are already showing results as FDI inflows have grown 36% year-on-year in the first half of the current fiscal, despite a 5% reduction in global FDI inflows. This is a positive sign as reduced uncertainty about foreign capital outflows can help control currency volatility.

Cleaning up Political Funding

The FM’s initiatives to clean up political funding, including the innovative step of introducing electoral bonds is welcome. I think it will pave the way for transparency in political funding.

Boosting the Rural Economy

Equally laudable is the move by the government to tackle distress in rural economy by giving a push to market reforms in agriculture, increased funding for crop insurance and setting a higher target for agricultural credit in the Budget. The government has earmarked Rs 10 lakh crore towards farm credit in the next fiscal. To help farmers get better value for their produce, the Budget talked about a model law on contract farming and reiterated the government’s earlier goal of bringing in more regulated agriculture markets on the electronic National Agriculture Market (e-NAM) platform. Overall, funding for the rural and agriculture sector was increased by 24%.

It was quite heartening to see the intent on setting up of digital infrastructure using high- speed broad band optic fibre network to provide internet access to rural India.  More than 150,000 gram panchayats will be equipped with broad band connectivity by the end of the next fiscal.

Digital Economy

The Budget should also be appreciated for its focus on introducing measures that will push greater adoption of electronic payments and will enable India’s move towards being a large digital economy which is less cash dependent. The capping of cash transactions upto a maximum of Rs 3 lakhs is a big bold step that will compel people to move to digital payments.

‘Aadhar Pay’, a merchant version of Aadhar Enabled Payment System, is proposed to be launched shortly. Also certain exemptions related to excise and customs for devices and equipment’s required for digitisation will aid this transition.

Skilling Youth

Several schemes directed at youth for education & skill development are  welcome. The Budget proposed an innovation fund for secondary education to encourage local innovation in educationally backward districts. To enable a Massive Open Online Courses (MOOCs), a SWAYAM platform will be launched with at least 350 online courses. Moreover, a Skill Acquisition and Knowledge Awareness for Livelihood Promotion (SANKALP) program will be launched at a cost of Rs 4,000 crores to provide market relevant training to 3.5 crore youth. Another positive aspect is that good quality higher education institutions will be given greater administrative and academic autonomy.

Reducing Corporate Tax

The proposal to reduce corporate tax to 25% for start-ups and MSMEs with revenues up to Rs 50 crore is a positive signal.  India Inc., however, was expecting more from the FM on this front. Not only do the global trends point towards lowering corporate taxes, Mr Jaitley had earlier promised to reduce corporate tax rates to 25% in three years, hence he could have offered some relief in that direction. I believe that this was a missed opportunity to align India with the global trend. He could have incentivized investments and job creation by large corporates by linking them to tax rebates.

Conclusion

The Pharma & healthcare sector has not got enough attention in this budget again. Some symbolic proposals have been made but nothing substantial has been announced towards providing universal healthcare. I also think the Budget fell short in providing enough impetus for private sector investment, manufacturing and exports, which are urgently needed to propel the Indian economy on to an accelerated growth path.  Overall, I will rate the Budget 7/10.

This article originally appeared in The Financial Express on February 3, 2017.