Notwithstanding the government’s various spending projections and higher allocations for various departments, the proposed total budget expenditure for the whole of 2017-18 is Rs. 21,46,735 crore which is barely seven per cent higher than the revised budget expenditure estimate for 2016-17. A higher inflation rate next fiscal may actually mean a contraction of the government expenditure over the current fiscal. The government’s revised expenditure estimate for the current financial year is Rs. 20,14,407 crore. The actual government expenditure for the current financial could have been much higher but for the severe currency shortage in the market, especially since November 8, 2016. In fact, the severe cash shortage in November and December led to a substantial cooling down of the demand of almost all items, including food and essential goods and travel. Also, as a result, consumer prices increased by only 3.63 per cent in November and 3.41 per cent in December. Suffice it to say that the demonetisation slumped the currency in circulation and badly hurt consumption. The inflation rate in India averaged 7.38 percent from 2012 until 2016, reaching an all time high of 12.17 percent in November of 2013.

Several factors may contribute to a higher consumer inflation rate in 2017-18. Among them are higher money supply, poor monsoon, petroleum prices, consumer confidence and market sentiment. In addition, the health of a good part of the domestic industry such as information technology services and pharmaceuticals could contribute a lot to the status of Indian economy, its growth and inflation rate. India’s electronics software industry and drugs and pharmaceuticals exporters are heavily dependant on the US policies. They are highly apprehensive of the impact on the proposed import restrictions under the newly elected Donald Trump administration in the US. While it is true that the budget could do little to protect the economy against such external uncertainties, what the budget seems to have failed to check is avoidable import. The indirect impact of President Trump’s protectionist policies may lead to more export dumping into India by countries such as Trump-hit China, South Korea and Indonesia. That threatens to severely hurt domestic industry, especially those manufacturing steel, coal, fertilisers, cement, minerals and power. The 2017-18 budget has left the government’s import policy and tariff rates practically untouched.

The farmers’ associations of the election-bound Uttar Pradesh and Punjab have already rejected the government claim as the budget being pro-agriculture. They claimed that the proposed higher crop insurance coverage was more to benefit insurance companies than farmers. Most MSMEs in UP are doing badly. The token five per cent income-tax relief to MSMEs and the continuation of tax sops to start ups are unlikely to make much difference. Many see in the budget’s heavy focus on digital economy the government’s inability to normalise cash availability too soon. The excessive digital drive has little to do with the reality of average financial health and education standards of the country’s vast famished and undernourished population. The Indian economy, heavily dependant on the services of low daily wage earners ranging from Rs. 150 to Rs. 200 per day, accounting for almost 30 per cent of the population, is unlikely to make a quick progress on digitisation without the government’s massive investment in public education, job creation that offers a decent minimum survival wage and living condition of the poor. The next year’s budget focuses on promoters of such low cost housing that is beyond the reach of this population.

Lastly, there is little to curb black money in the budget except for the focus on digital transaction, pegging cash transaction limit to Rs.3 lakh and cash political funding limit to Rs. 2,000 from 2018. The budget does not focus on such administrative reforms that can tackle the growing cash bribing menace to buy up police, judiciary and administration adding to the circulation of black money. There is no restriction of cash holding with individuals and banks. There is no restriction on gold imports and private investment in gold. In the last 10 years, India has imported almost $500-million worth gold. Where is the massive quantity of gold going? In the government’s own admission, the vast majority of the income tax assessees in the Rs. 5-lakh annual income group belong to the salaried individuals and pensioners. Although a lower tax rate for this category is most welcome, the imposition of 10-15 per cent tax surcharge on higher income groups is most illogical and goes against the government’s avowed attempt to curb black money and reward honest individual tax payers. (IPA Service)