No wonder Mr Modi, who crafted the budget strategy, joined his partymen in thumping the desk for every allocation boost rolled out in his budget speech by Finance Minister Mr Arun Jaitley in Lok Sabha on Feb.29. Rural Development gets Rs. 87.765 crores. It is another matter whether at the end of the day, all the higher allocations get utilised and benefits delivered, looking to spending outturn (shortfalls) in the current year.

Be it said to the credit of Mr Jaitley that he has not made most of it welfare spending inasmuch he has also given his budget for 2016/17 a coat of reforms to buy credibility for the overall fiscal exercise. He has stuck to declared targets of 3.9 per cent of GDP as fiscal deficit in fiscal 2016 and 3.5 per cent of GDP in 2016/17 thereby underlining Government's continuing commitment to fiscal consolidation.

This fiscal prudence is indicative of a signal for RBI to ease monetary policy, subject of course to CPI remaining target-bound. The Budget has proposals on monetary policy management for the future and provides for Rs. 25,000 crores as recapitalisation of public sector banks, all stressed with bad debts.

Besides enhancing expenditure in priority areas such as farm and rural and social sectors, infrastructure investments, Mr Jaitley maintained his Government's reform agenda was on course to ensure the passage of GST and insolvency and bankruptcy laws. His announcements on doing business easier included liberalisation of FDI to make possible 100 per cent participation in processed food retailing, a back door entry perhaps for other multi-brand items for inclusion later on.

Mr Jaitley did not declare an end of 'tax terrorism' once and for all but listed ways of reducing tax disputes and special procedures to get rid of arrears disputes with multi-national companies. There were no changes for domestic tax payers and all that Mr Jaitley said was that his proposals would reduce compliance burdens 'with faith in the citizenry' . Even those with black money have a chance to come clean.

The budget makes a few halting steps on corporate tax reform and withdrawal of some exemptions but in no way hurting the rich or bigger corporates. The thrust of additional resource mobilisation is in excise and service tax designed to yield, net of direct tax concessions, Rs. 19,610 crores.

But apart from the government employees to benefit from the implementation of 7th pay commission's revised pay scales and OROP, the ordinary people of the country have nothing to cheer in the budget. The excise levies, already effected in advance to save Mr Jaitley's fiscal target in 2015-16, coupled with new ones, and the further rise in service tax and its wider extension, would all throw cost and price burdens for the economy and the common man.

Whether the higher pay for lakhs of government employees creates a demand impact or not, the Finance Minister bases growth revival in fiscal 2017 on domestic demand, especially with ongoing global headwinds and slowdown, on the strength of Government’s market-friendly policy reforms. The budget estimates are based on nominal growth of 11 per cent (8.6 per cent in BE 2015-16) at current market prices.

The official assumption is that continued lower inflation, buoyant tax,, increasing foreign direct investment flows and government’s push to reforms in crucial areas including banking, infrastructure, power, taxation, etc., have brightened the near term prospects for the economy. From around 11 per cent in 2016-17, growth is likely to accelerate to 12 and 13 per cent in the following two years.

The investment focus in the budget is primarily in the agricultural and rural sectors with 'substantial potential' for higher growth and Mr Jaitley cites infrastructural investments proposed in the road sector, railways and power etc which should help to build up the growth momentum. It is Mr Jaitley's claim that his budget agenda for 2016/17 would be transforming India.

Getting down to the arithmetic of the budget, Mr Jaitley does not expect the revenue buoyancy as in 2015/16 with the excise levies on lower oil product prices. With additional burden on account of the 7th pay commission, there is an attempt to prioritise expenditure with focus on farm and rural areas, the social sector, infrastructure sector and bank capital recapitalisation.

For additional resource mobilisation, Mr Jaitley has roped in higher income groups with his proposals to tax dividend in the hands of recipients where it exceeds Rs 10 lakh per annum as well as by raising the surcharge from 12 to 15 per cent for incomes above Rs. one crore.

Revenue mobilisation has been rising not only by frequent revision of service tax rates but also levy of a variety of cesses. The Budget brings in a Krishi Kalyan Cess, @ 0.5% on all taxable services, proceeds of which are intended to be exclusively used for financing initiatives relating to improvement of agriculture and welfare of farmers.

The medium-term fiscal policy statement of the Finance Ministry projects fiscal deficit to decline from 3.5 per cent of GDP in fiscal 2017 to 3.0 per cent in the following two years (2017-19). Gross tax revenue to GDP improved to 10.8 per cent in 2015-16 (RE), thanks to excise levies, and it is assumed to continue at the same level in BE 2016-17 as only moderate revenue growth is projected on an already higher excise duty base.
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But the fiscal correction assumed by lowering the current year deficit by 0.4 percentage points to 3.5 per cent of GDP would be challenging unless Government mobilises larger non-tax revenues than in current year. Disinvestment receipts are budgeted at Rs. 56,500 crores, which would come partly (Rs. 20,500 crores) from sale of strategic and minority stock holdings Government held in some enterprises. To alleviate downside risks, Government would have to deliver on the targeted disinvestment and also ensure going through with spectrum auctions, even in a phased manner.

Whatever the claims of the Finance Minister on his 'transformative budget' for 2016-17, its timing is unmistakable and it facilitates Mr Modi's campaigning for his party in the forthcoming round of state elections in the countrysides of the South and in West Bengal (April-May) and later in Uttar Pradesh and Punjab in the North (2017). (IPA Service)