Over the past couple of years, the significance of the Union Budget has slowly but surely diminished. Paradoxical as it may seem, this is good news. Let me enunciate why it is so.
Past governments have made major policy initiatives in the Budget, but this government has been legislating structural reforms all year round. Last year saw the Goods and Services Tax (GST) and the much-needed Real Estate Regulation Act (RERA) becoming a reality.
Further, indirect tax is now under the purview of the GST Council and not going see any change in the Budget. It is in the context of these factors that I feel that the significance of the Budget is going to be diminished.
As this is the last full Budget of the NDA government in the runup to the 2019 general elections, I would anticipate a slight spike on the expenditure front (as has historically been the case). At the same time, I don’t expect the government to breach its fiscal deficit target at 3 per cent of GDP as recommended under the Fiscal Responsibility and Budget Management (FRBM) Act; so it is most likely that the government starts looking for alternative funding sources.
Key beneficiaries on the expenditure front are likely to be the rural economy – especially since agriculture growth is estimated to have slowed down to 2.1 per cent (more than 50 per cent) from the last financial year and in the aftermath of the Gujarat election results, the governments proclivity for the rural economy is likely to be high.
One thing I have always maintained is this government’s serious intent to structurally mend the rural economy. This is manifested by the crop insurance scheme and productivity accretive measures like soil health cards, DBT of fertiliser subsidy and huge investments in irrigation among others. Therefore, I believe rural sector will continue be one of the key focus areas of the Budget.
In continuation to last year’s reforms and in line with the larger strategic vision of this government, infrastructure and affordable housing shall both also be a cynosure on the expenditure front. India is in the midst of its second grey revolution – an era of massive infrastructure capacity creation and the government is likely to continue expenditure on key Infrastructure projects.
Affordable housing shall also continue getting attention with more fund allocations to credit-linked interest subsidy schemes (CLSS) for housing loans, in line with the government’s objective of Housing for All by 2022.
On the revenue front, I expect a further rationalisation of direct tax rates – both corporate as well as individuals.
Indirect taxation as highlighted earlier is now under the purview of the GST Council, so the major scope for manoeuvring fund inflows would be on the non-tax revenues. Various ministries have conveyed that they will look at monetising their assets and not solely rely on budgetary support for their investments.
This is a trend which is likely to sustain over the longer term. Collectively, in the last financial year the government raised Rs 52,500 crore in this financial year through myriad divestment avenues, including listing of insurance PSUs and the CPSE and Bharat 22 ETFs. This goes on to show that non-tax revenue can generate good traction, if thought through well.
As the tailwind of oil prices gradually diminishes, and private capex growth remains relatively muted, the government will need to aggressively push forward on capital expenditure to boost the economy and induce private capex.
The government is likely to execute this through rural and infrastructure spending measures; which on the revenue side are most likely incrementally going to be funded through non-tax revenue.
In summation, I anticipate the Budget to be a fiscally responsible one with structurally sound policy announcements, striking a nuanced balance between populism and realism.