Ashok Lahiri: FM keeps the excitement alive

The main positive message is that this govt is going to stick to its commitment on fiscal prudence

The run-up to the Union Budget for 2017-18 had plenty going for it all the way.  It had promised to integrate the Railway Budget, presented separately since 1924, with itself. It had planned to abolish the Plan-non-Plan classification of expenditure.  And, it was scheduled to be presented in Parliament at the beginning rather than the end of February. After all the excitement, the Budget 2017-18 with some very positive messages, was quite encouraging.
 
Take, for example, demonetisation.  After the “pain” or inconvenience suffered because of the decision to withdraw the legal status of Rs 500 and Rs 1,000 currency notes, people have been asking “where is the gain?” 
 
From the finance minister’s Budget speech, it is heartening to note that the government has been analysing the data. Finance Minister Arun Jaitley revealed that between November 8 and December 30, 2016, old currency notes between Rs 2 lakh and Rs  80 lakh were deposited in about 1.09 crore accounts with an average deposit size of Rs 5.03 lakh. Deposits of more than Rs 80 lakh each were made in 1.48 lakh accounts with an average deposit size of Rs 3.31 crore.  Surely, the government is not analysing the data out of academic interest!  
 
The main positive message is that this government is going to stick to its commitment on fiscal prudence, enhance outlays on capital expenditure, particularly infrastructure, and improve the ease of doing business. The government is not going to commit the mistake of being tempted by the allure of departing in a major way from its announced path of fiscal correction.
 
The Medium Term Fiscal Policy Statement of Budget 2016-17 had targeted the fiscal deficit at 3.0 per cent of GDP in 2017-18. Budget 2017-18 provides for a fiscal deficit only marginally higher at 3.2 per cent of GDP.  Furthermore, this marginal increase is balanced by the better-than-targeted performance in 2016-17 with the fiscal deficit at 3.2 per cent of GDP according to the revised estimates (RE), compared to 3.5 per cent budgeted.  Fiscal prudence has a lot to recommend itself in the coming year with some risk of inflationary pressure from hardening oil prices, strengthening dollar and growth of protectionist sentiments in some advanced countries.
 
As a proportion of total expenditure, Budget 2017-18 has enhanced the budgeted outlay on capital expenditure to 14.4 per cent from 12.5 per cent in the previous year.  Almost 2 per cent of Rs 3 lakh crore is not an unsubstantial amount.
 
The abundant liquidity relative to the available investment opportunities in the global economy and the country’s relatively fast growth provide a golden opportunity for India to attract foreign direct investment (FDI). More than 90 per cent of total FDI inflows are now through the automatic route. 
 
Minister Jaitley has announced that the Foreign Investment Promotion Board (FIPB) has successfully implemented e-filing and online processing of FDI applications, and will be abolished in 2017-18. This is a major step in improving the ease of doing business.
 
Infrastructure, the Achilles’ Heel of the Indian economy, gets a boost in Budget 2017-18. The total allocation for infrastructure development has been increased from Rs 3.58 lakh crore in 2016-17 (RE) to Rs 3.96 lakh crore in 2017-18. Disputes have stalled many infrastructure related construction contracts, PPP and public utility contracts. The finance minister has announced that the Arbitration and Conciliation Act 1996 will be suitably amended to provide the required mechanism.
 
Home loans should get a boost from the National Housing Bank refinancing individual housing loans of about Rs 20,000 crore in 2017-18. Affordable housing has been emphasised in Budget 2017-18 by giving it the benefits available to infrastructure sector. The scheme for profit-linked income tax exemption for promoters of affordable housing announced in Budget 2016-17 has been amended, including the extension of its completion period from 3 years to 5 years from commencement, should attract more investment into the sector.

The writer is former chief economic advisor to the finance ministry