oppn parties Budget in the Times of Revenue Squeeze and Impending Elections

News Snippets

  • The Army conducts an operational alert exercise in eastern Ladakh
  • The IAF reopened the Vijaynagar advance landing ground, an airstrip in Arunachal Pradesh near the Chinese border
  • Amit Shah says he never sought to impose Hindi
  • Government bans the manufacture and sale of e-cigarettes in India
  • Mamata Banerjee seeks an appointment with Home Minister Amit Shah today
  • Bengal CM Mamata Banerjee meets PM Modi in what she later described as a government-to-government meeting
  • Supreme Court sets a deadline of October 18 for completing the hearings in the Ayodhya case
  • Pakistan rejects India's request for use of its airspace when PM Modi flies to the US later this week
  • Crude prices fall sharply as Saudi Arabia assures normal production in a few weeks. Prices fall by 5.4% to $65.30 per barrel
  • Sensex tumbles 700 points over fears that rising crude prices will deal a body blow to the tottering Indian economy
  • As Rajeev Kumar fails to appear before the CBI despite several notices, the agency forms a special team to locate and apprehend him
  • S Jaishankar says Pakistan is not a normal neighbour and its behaviour is a "set of aberrations"
  • External Affairs Minister S Jaishankar says PoK in Indian territory and the country hopes to have physical jurisdiction over it one day
  • Barasat Sessions court near Kolkata rejects Rajeev Kumar anticipatory bail application citing lack of jurisdiction as the reason
  • PM Modi celebrates his birthday with Narmada aarti and later has lunch with his mother.
Sunni Wakf Board and Nirvani Akhara write to the Supreme Court for a negotiated settlement to the Ayodhya dispute
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Budget in the Times of Revenue Squeeze and Impending Elections

By Sunil Garodia

About the Author

Sunil Garodia Editor-in-Chief of indiacommentary.com. Current Affairs analyst and political commentator. Writes for a number of publications.
The budget tomorrow can take the shape of a political document rather than a financial one. While that is mostly the case in the last year of any governmentÂ’s term, as long as it keeps fiscal prudence in mind, one cannot find fault with it. This government faces the dilemma of a revenue squeeze while presenting its last full budget. Hence, the finance minister might indulge in upping the deficit to more than 3.5% of the GDP, which might not be a good thing to do. A small amount of deviation, say up to 3.3% or even 3.4% is tolerable since the economy badly needs investment from the government to create jobs but anything above that will disturb the financial markets. It will also lead to more fiscal indiscipline in future.

The contours of the budget are becoming increasingly clear. Given large scale farm distress all over the country, this budget will be largely farmer oriented. Since the Indian economy is driven by agriculture and the farm sector employs a huge number of people, taking care of the sector solves many problems afflicting the economy. But the finance minister has to eschew populism of the kind that gives free power or writes off bank loans to farmers. Concrete proposals that make for sustainable livelihood are more likely to solve the problems of farmers rather than petty handouts. Something also needs to be done about the farm produce marketing and supply chain. A lot is added on produce from farm to table and the farmer gets only a small percentage of it. The rest is cornered by middlemen. This has to be reversed by suitable marketing policies.

Then although the prime minister had promised to cut corporate tax rate to 25% (it is already so for companies earning less than Rs 50 lakhs), the revenue squeeze might delay it by another year. But analysts have pointed out that if taxes are not lowered new investments might not come in and there might even be flight of capital to countries that have already lowered corporate taxes to 17%. Hence, the finance minister will have to find a way to make up the losses due to lowering of corporate tax and make good the promise the prime minister made.

Further, given the woeful condition of public health and education systems, the government needs to increase spending in these sectors. But for long we have seen that money is being spent without accountability, leading to non-existent schools and hospitals. Henceforth, there should be proper checks in place to ensure that money spent results in creation of lasting assets of value rather than going into the pockets of crony capitalists. Social audit of money spent on welfare schemes is a must and it should be an ongoing process. Funding should not be taken for granted by the recipients.

Finally, the finance minister will also need to placate the salaried and middle classes who have been crushed under rising prices of essential commodities. There is talk of standard deduction for salaried employees making a comeback. This will be a sensible move and will benefit a large section of the people. Further, the exemption limit has not been raised for long. Given inflation, it should now be raised to Rs 3 lakhs from the existing Rs 2.5 lakhs. Tax slabs and rates were modified last year and there is no need to tinker with them. The finance minister will have to provide relief all around but will have no such luxury for the government. Let us see what magic wand Arun Jaitley has.