August 23, 2017

A Thematic Budget

source:http://mediaindia.eu/business-politics/indian-budget-2016/

He who sees inaction in action, and action in inaction,

Is wise among men

      Bhagwad Gita, Chapter 4, Verse 18

Budget 2017 has evoked somewhat of a mixed response from the people I managed to interact with over the last 24 hours. While some complained about tax on individuals not being reduced, others were dissatisfied with corporate taxes not being changed. For myself, my first immediate response as a common Indian was that the budget appears ‘status quo-ist and incremental’, and in many ways, it is. But is that necessarily bad?

Instead of judging the budget as ‘good’ or ‘bad’ using the narrow prism of personal interest, I think a more intellectually rigorous study should be made. A budget can be broadly seen from four perspectives:

a.Maintenance or tweaking (usual allocations to defence, etc. are adjusted)

b. Problem fixing (sections addressing issues of the day, e.g. bad loans)

c. Large, tectonic changes (like the liberalization budget in 1991)

d. Thematic portions

Admittedly The Bookkeeper is not as interested in points a and b above as he is in points c and d. This is likely the case for most observers of the annual policy document. In fact, the quality of the budget is indeed judged on these two metrics only.

It is now clear that there are no tectonic changes in the current budget. A country the size and potential of India should not aim to shock (pleasantly or otherwise) in its budget every 3-4 years. It has to give a semblance of continuation to allow businessmen and other governments to take long term decisions. The heady days of massive liberalization, takeover of industries, are hopefully behind us and barring a few exceptions it would serve us well to adjust to the “new normal” for what a budget should be.

It is in the thematic portions that the budget has impressed The Bookeeper and gives us a glimpse of Prime Minister Narendra Modi’s grand vision for India. Indeed instead of a dry rattling off, of numbers and allocations in the budget (which should be easy for anyone to get), The Bookkeeper believes that a look at the Budget in the context of the PM’s vision would prove truly enlightening.

It is my contention that a pithy summary of PM’s governance philosophy, which is well reflected in this budget, would read:  Integrate & enable.

Integrate:

A disconnect exists at various levels in India, between regions, villages vs. cities, formal vs. informal, government vs. poor, etc.  The often discussed disconnect between ‘India’ and ‘Bharat’, in its various avatars, is responsible for significant leakages and inefficiencies in the system. Rajiv Gandhi had famously quipped about the system he presided over where for every Rupee sent, only 17 paise reached the beneficiary. Nearly 25 years after he made this statement, the Planning Commission Deputy Chairman Montek Singh Ahluwalia had corrected the late Rajiv, saying that the beneficiaries gain was in fact 16 paise/ rupee and not 17.

It is for this reason that integration of the various parts into a functioning whole has been high on Prime Minister’s agenda since the day he took office. Linking the Aadhar card to bank accounts, using incentives of zero balance, free insurance, direct benefit transfer, etc. to get the poorest of the poor to open bank accounts, promotion of a digital economy, strides toward e-governance, are all steps towards integrating disparate portions of the economy on a common platform. The Bookkeeper would argue that the drastic step of demonetization was also a move towards Integration of the “Un-Inc.” economy with the mainstream.

Consider the budget proposal to computerize and integrate over 63,000 Primary Agricultural Credit Societies with their respective district central cooperative banks. This will enable the government to plug leakages and ensure that credit is flowing to the small/ marginal farmers instead of just the large stakeholders in each region. Integration will ensure that the record Rs10 lakh crore slated for agri-credit will be disbursed efficiently.

To allow farmers easier price discovery and standardize the quality of the produce, the National Agricultural Market (e-NAM) has been extended to 585 markets from 250 earlier. e-NAM is an electronic trading portal to create a unified national market for agricultural commodities. Further it is planned to integrate spot and derivative market for commodity trading using the e-NAM platform. Fruit and vegetable growers are to be linked with local agro-processing units to check post harvest losses.

Even a programme like MNREGA, which the PM once touted as a symbol of the Congress’ failure, has been realigned with the larger objective of doubling farmer’s income in five years. The government is now also using space technology to geo-tag assets created by MNREGA workers to ensure that a) Work is actually done and, b) Work does not happen in a silo but only where gaps exist. An integration of disparate work into a combined whole will ensure that the highest ever allocation to MNREGA (Rs48,000 crore) will be spent transparently (geo-tagged assets will be in the public domain), and intelligently.

Other examples of virtual integration proposed in the budget include the linking of 150,000 village panchayats using broadband optical fibre by FY18. The Government will also launch ‘Aadhar pay’, the merchant version of the Aadhar enabled payment system which will allow those who do not have debit cards, mobile phones or eWallets to make/ accept digital payments. In fact the government has a target of 25 billion digital transactions for FY18.

The budget has also tackled one of the main sources for political corruption by integrating political party funding with the mainstream traceable economy. Cash donations have been effectively outlawed by restricting the per donor contribution to Rs2,000 only. Additionally a system of election bonds has been introduced to allow anonymous, but not illicit, donations. Under this system a donor would purchase bonds from a bank using a cheque or digital payment and hand the bond to the Party he/she wishes to donate to. The bonds will devolve into money, ONLY in the designated bank account of a registered political party. This will bring about greater transparency and accountability in political funding.

In addition to the virtual integration efforts described above, significant investments are planned for physical integration using roads, rails, waterways and airways.

Thus a broad spectrum approach to bring various interests and mechanisms on a tech supported common platform will go a long way in ensuring the crucial leakages, slippages and corruption conduits would be stymied.

Enabling:

Enabling and empowering the population is one of the main functions of a good government. An adequate enabling environment allows people to lift themselves up from poverty instead of depending on hand-outs from the government. Creating skill, infrastructure, health, risk mitigation and financial incentives are key cornerstones of an enabling mechanism, and these have been addressed in the budget.

For example, the Fasal Bima Yojana (failed crop insurance) has been extended to 40% of net cropped area in FY18. Its popularity can be gauged from the fact that the amount insured under this scheme has risen from Rs69,000 crore to Rs141,625 crore. Additional support to farmers has come in the form of a Long term irrigation fund with a Rs40,000 crore corpus. The system of soil health cards, to be supported by 1000 minilabs run by local entrepreneurs offers opportunities and mitigates risks for farmers at various levels.

Road construction under the Pradhan Mantri Gram Sadak Yojana is at a rapid clip with 133 km of roads being added every day, vs. only 73 km during the period 2011-2014. Also, power infrastructure is being added to target 100% village electrification by May 2018.

The budget has committed to provide safe drinking water to 28,000 arsenic and fluoride affected habitations in the next 4 years. Additionally, the Budget plans to eliminate kala azar, filariasis by 2017, leprosy by 2018 and measles by 2020. Sanitation coverage in rural India has gone up from 42% to 60%. Villages that are free from open defecation will be given priority for piped water supply thus creating a reward system for rural India to join hands with the clean India mission. To augment the supply of doctors, 5,000 new post graduate seats are to be added in the coming year.

The government also proposes to construct 1 crore houses by 2019 to house the homeless and those living in kuccha houses. Affordable housing has been given infrastructure status and tax incentives have been announced for players in the affordable housing space to encourage supply.

The Bookkeeper is also pleased with the tax cut (30% -> 25%) for the MSME space for companies with a turnover less than Rs50 crore. There are 6.67 lakh such units (96% of Indian companies) and this cut is estimated to bring about Rs7,200 crore in benefits to them. MSMEs (corporates + non corporates) are an important constituent of the Indian economy providing employment to over a 100 million individuals and accounting for 37% of the GDP. This tax cut would allow MSMEs to be more competitive vs. the larger players and increase their innovation and employment potential.

Despite the “Mann ki baat” initiative by the PM and the odd surprise appearance on TV to address the nation, the Budget remains the primary policy document in India. Indeed, The Bookkeeper is not aware of any other large country where the budget is the cynosure of so many eyes. This year’s budget was even more so, given that the plan-non plan division was made irrelevant and that the Railway budget was subsumed within the general budget.

In conclusion, The Bookkeeper is impressed not just with the quality of the budget, but also the changed tenor of it. Conspicuous by its absence is the usual tweaking of indirect tax rates, which used to be followed by the customary news headlines of which consumer goods became dearer or cheaper. The third budget of the Modi government has built on the earlier two and as emerged as a policy direction platform for the economy.

About The Bookkeeper 11 Articles
An intrepid accountant, investment analyst, ex fund manager, jyotish student, traveler and observer. Zinda hoon zindagi ka talabgar nahin hoon, Bazaar se guzra hoon, khareedar nahi hoon.