Feel good for janta, disappointing for corporate India
Reuters | Photo Credit: PIB

Finance minister Arun Jaitley almost replayed his last year’s Union Budget speech on Wednesday, if not in words then in theme, seeking to appease small taxpayers with minor changes and boosting rural income while almost ignoring big business.

Jaitley added two new spokes to the overall agenda while retaining last year’s action plan to ‘Transform India’. He said the additional agenda for the next year is to ‘Energise and Clean India’ thereby uplifting the youth and the vulnerable to do better while tackling corruption, black money and opaque political funding.

While the thought process is laudable, there is far too less in the Budget to help him do what he hopes to achieve. Indeed, by once again skipping the promise he made to India Inc two years ago, to reduce corporate taxation (by limiting it to small firms), the finance minister just stretched the wait for larger companies and indeed much of Indian public listed firms, for that matter.

He justified it by saying that it covers 96% of companies in the country by numbers. But the move is unlikely to 'energise' corporate India to revive investments.

Equally important was the deviation from the fiscal responsibility path after boldly sticking to it last year. The finance minister said he is now looking at a fiscal deficit target of 3.2% of GDP against the previous forecast of 3% for FY2017-18. This doesn’t help the government’s credibility, especially after the faux pas during the two months of demonetisation, where it was eating its own words every second day.

Given that this is not expected to boost public spending in any of the critical sectors immediately and the additional allocation for PSU bank recapitalisation at Rs 10,000 crore is seen as too small, the finance minister may have missed the chance to better sell the fiscal slippage to global investors.

Moves to raise the allocation for rural employment scheme and initiatives for skilling the youth would help boost rural consumption and employability at large. Ironically, the government has boosted its outlay for the rural employment scheme MGNREGA  to the highest ever level despite being a big critique of it when the BJP parliamentarians sat in the opposition flank. The total allocation for the rural, agriculture and allied sectors in FY2017-18 is pegged at Rs 1,87,223 crore, up 24% over the current year.

The cut in income tax liability of small taxpayers, though just nominal, does add a feel-good factor to the Budget for the common man, after the pain of demonetisation.

But the boost to rural income and some relief, howsoever small, to taxpayers, strap well with the regional election cycle as five states go to polls starting this weekend.

The finance minister has sought to push the case for a mid-course correction by the Narendra Modi-led BJP government without appearing to be overtly populist. The embarrassing defeat in Bihar ahead of the last Union Budget and a virtual no-show in West Bengal a few months thereafter have taught the ruling party that voters want to see more than just big economic reform terms like GST.

The stock market investors were seen doing high fives with the benchmark indices rising around 1.8%. However, this was seen as more of a cheer from lack of negative surprises that were anticipated rather than a clap for a great Budget.

To be sure, there was widespread expectation that the finance minister may abolish the exemption of long-term gains tax in the equity market, impose a dividend tax with liability on the shareholders and even up the liability of securities transaction tax (STT). The absence of these shockers was relief enough for investors.

Coupled with expectations that the Budget would boost affordable housing and rural consumption, the overall takeaway for stock investors, though not for India Inc at large, was positive.

One surprising aspect was that the finance minister did not say anything on banking transaction tax, which many believed would become an alternative to a revolutionary scrapping of income tax, as soon as this Budget. So much so, the taxman’s official website has a new provision for paying the tax along with the fringe benefit tax that was abolished almost a decade ago.

In a nutshell, the finance minister has tried to strike a chord with the masses, cheered stock investors by not saying what they feared but lost some face by veering off the fiscal management path and pushing tax cuts for large companies to another day.

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