Budgeting in India has returned to its original purpose: to raise revenue in small bits and to spend wisely in small bits. When nothing much happens, nothing much needs to be said.
On that reckoning, the Budget for 2018-19 will be forgotten within a week, except perhaps by those who have to pay the long term capital gains tax of 10 per cent henceforth, the enhanced surcharge on personal incomes and, possibly, the beneficiaries of the new hospitalisation insurance scheme who will look forward in hope.
The political impact of this scheme will be like that of MNREGA. Its economic cost remains to be seen. The devil in insurance lies in the details and must never be underestimated.
While the first – the long term capital gains tax is fully and immediately implementable, the second may turn out to be just one more announcement that gets bogged down in the details. Ever since Indira Gandhi made the poor the focus of budgeting, this has been the central problem which no government has been able to solve.
That said the government must be congratulated for not having taken the well-trodden route that previous governments have tended to take before a general election. To be sure, scores of schemes have been announced with the rural vote in mind, especially rural women.
But overall the allocation to these is not very much. In any case, by the time the money becomes available for spending which would be around October, and begins to get spent, the general election will be upon us.
However, the prime minister and the finance minister have given their candidates several talking points when they go campaigning. To that extent this one can be called an election Budget. Indeed, one can see large chunks of the Budget speech resurfacing in the BJP’s election manifestos.
If we look at the past Budgets of this government, it is clear that it regards the health of public finances in completely different way from the way the Congress did. It has avoided fiscal profligacy completely. The fiscal deficits since 2014 are clear proof of this.
For this Mr Modi needs to be congratulated. It has been unusual for past prime ministers to place so much importance on the need for a healthy fisc. He has recognised the fact populist Budgets don’t guarantee favourable electoral outcomes.
It was Indira Gandhi who started the trend in 1970 when she herself presented the Budget before she launched her election campaign. Hopefully that ghost has been laid to rest forever.
There are some eye-catching tweaks such as the reduction to 25 per cent in the tax rate for companies with turnovers up to Rs 250 crore. This, as the finance minister said, should help them invest more. Whether they will depend on the availability of credit from banks, of which as yet there isn’t much hope.
The downside is that just as we have seen when companies seek to avoid the effect of labour laws, in this case also we could see fragmentation as companies create new entities to remain below the threshold turnover.
The little tweaks to the disposable incomes of the middle class and senior citizens don’t amount to much. But the changes made to long term capital gains tax in respect of real estate should have some impact on the black-white proportions of second sales of houses and flats.
On the customs duties side also the changes are marginal, mainly at signalling to China to rather than damaging trade with it. But after what the prime minister had said at Davos about creeping global protectionism it would have been futile to except anything much more.