The Budget does not break any new ground. It is an incremental budget with a large dose of tokenism, in the shape of Rs 100 crore allocations for many projects and schemes. Anyone who had been holding their breath to see Modi herald a new paradigm in governance now has the task of waiting till next February 28. The raft of case-by-case changes introduced in indirect taxes is gross regression, completing the unravelling of the good work done by Yashwant Sinha perpetrated by Pranab Mukherjee in his budgets as finance minister.
The extensive tinkering in indirect taxes also suggest that the government is in no hurry to introduce a Goods and Services Tax. The impression gains ground from the absence of any assurance to states that any revenue shortfall from the introduction of GST would be made good by the Centre.
The saving grace is that the fiscal deficit has been retained at 4.1 per cent, the target set by Jaitley's predecessor P Chidambaram in his interim budget. The assurance held out that the fiscal deficit would come down to 3 per cent by 2016-17 should satisfy foreign investors and rating agencies about India’s macroeconomic stability.
This is also the Budget’s major contribution to growth, apart from the provisions to attract capital into Real Estate Investment Trusts for both real estate and for infrastructure. Investment and growth need lots of state funds when sentiments are low and the private sector's animal spirits have gone on vacation. When optimism rides high, enabling policy is more important than direct injection of funds from the Budget to stimulate growth and investment. Tax holiday in power and investment allowance can be counted as enabling policy, besides the exemption from CRR and SLR for the deposits banks raise for long-term lending to infrastructure and REITs.
Some of the measures on streamlining advance pricing and advance ruling are most welcome and should improve India's reputation among foreign investors. Portfolio investors have got some concessions but foreign direct investment liberalization remains half-hearted and disappointing. Limiting investment in defence to 49% is to prohibit any serious technology transfer by a foreign defence manufacturer. Similarly, raising the investment limit in insurance to 49% will work, only if there is an eventual raising of the foreign stake to majority on the horizon. Similarly, allowing foreign manufacturers to sell online is partial liberalisation of FDI in retail -- a player like Amazon will still not be allowed to stock inventory and sell goods, it can only serve as a marketplace for third parties to sell.
The boost given to entrepreneurship is welcome. But for this to materialise, state governments have to loosen the procedural noose that today chokes ease of doing buisness in India.
Ultimately, execution of decisions, efficiency in clearing investment projects and overall better governance can boost growth, net tax revenue to the ambitious target set for it, and that would matter more for the economy than grand announcements in the Budget.
But the large picture remains that no major attempt to change the development paradigm by shedding the philosophy of give-aways that had been dominant in the UPA has been attempted. It is an incremental budget, with tokenism as its hallmark rather than any grand new vision for India’s development.
