Rajasv 2k14-15; the Budget Decoded

By Anusha Choudhari

With the budget (also called ‘rajasv’ in our national and official language) for the fiscal year 2014-15 out, there is already hot debate just how efficient it will be in reviving the GDP growth of our nation from a 4.4% to atleast a 5.4% in 2014-15. Let’s have a look, a young person’s look. ;)

BUDGET

Finance Minister Arun Jaitley’s maiden budget is characterized by a mix of gradualism in reforms, an attempt to boost the economy by putting more money in the hands of taxpayers and providing fiscal incentives for manufacturing.

For small/minor taxpayers, tax exemption has been increased from Rs. 2 lakh to Rs. 2.5 lakh. Exemption limit for senior citizens (above 60 but below 80) has also increased from Rs. 2.5 lakh to 3 lakh. Housing loan rebate has increased from 1.5 lakh to 2 lakh. Also, exemption limit on financial instruments, especially PPF (public provident fund), has increased from Rs. 1 lakh to Rs. 1.5 lakh, further encouraging saving. However the 3% education cess (tax) and 10% surcharge for individuals with income above Rs 1 crore will continue.

For consumers there is good and bad, but if fizzy drinks, pan masala and cigarettes are ‘bads’, then it’s good all the way! Excise duty on tobacco-containing products like cigarettes and cigars has been increased from 11% to 72%, excise duty on pan masala has been raised from 12% to 16%, and price of aerated drinks with added sugar (coke, people) will increase by 5%. Customs duty on import of inputs of durables like PCs, TVs, and LED lights has been reduced. Also, excise duty on footwear priced Rs. 500 to Rs. 1000 has been halved to 6%

For the education sector, the budget brings a bevy of new provisions. Arun Jaitley announced the opening of five new IITs and five new IIMs, and allotted funds of Rs. 500 crore each. Good news for all the IIT and IIM aspirants out there, judging by how my brother (he’s in 11th, preparing for engineering entrances) perked up when I read him this part of my article! Also, Rs. 100 crore has been allotted to the modernization of madrassas (Islamic high schools).

There is focus on boosting labour-intensive sectors such as textiles and road construction, with Rs. 37,800 crore being allotted to Indian national highway. A very innovative and ‘Out of box’incentive for stimulating infrastructure sector, innovative scheme of banks being allowed to give long-term loans on infrastructure without restrictions on CRR/SLR (Deepak Parekh, Chairman HDFC, even called it a “revolutionary” move). Other sectors like food processing and tourism have also been boosted, with Rs. 100 crore being allotted to development of archeological sites, for example Gaya, to be converted to a world-class tourist spot, and Rs. 150 crore for communication of Andaman and Nicobar islands.

THE GOOD

A Chinese saying goes; Give a man a fish and you feed him for a day; teach him to fish and you feed him for a lifetime. Excessive subsidies are the fish to eat whereas raising productive spending (on infra, edu, and health) is like teaching the country to fish. The good thing is that the budget raises productive spending by Rs. 35000 crore more than that of the interim budget, but subsidies in fertilizers, kerosene and diesel have not been revoked.

Also, the government has done the right thing by giving more money in the hands of the taxpayers. Through a combination of tax incentives and infrastructure spending on roads, the effort is to catalyse growth.

The good thing is that the Modi government seems to realize that growth can occur only through supply-push measures and not by demand-pull measures which the previous government had tried, leading to inflation. As long as government focuses on supply-side measures like releasing foodgrain stock, making timely imports and the deficit is under check, coupled with a good monsoon, Consumer Price Index inflation can be capped at 8%, and the growth rate expected in the next 3 years is 6.5-7%

THE BAD

The budget provides some incentives for growth but falls a little short of creating a transformative environment. Returning to a high growth trajectory will take effort, and the kind of effort in this budget does not go far enough. This budget is incremental and non-impulsive in pursuing reforms and many are of the opinion that this leaves our economy vulnerable to the slightest shock, although public opinion seems divided and uncertain, with the stock market yo-yoing to finally close at a little below the day’s start.

Over all the budget seems to pave a slow but steady path to “achhe din”. Hopefully, we will see India Modi-fied in a good way!