3 months, 2 weeks ago mycaguruKeymaster
Long Haul Budget 2018- Long Haul Brief Introduction
Long Haul Budget 2018- Long Haul Brief Introduction : Commentaries on the Union Budget, especially in the English language, can be lop-sided, reflecting interests of a small slice of society. The Union Budget is only one instrument available to Union government and there is no reason why a Budget for 2018-19 should represent a break with what a government has sought to do since 2014. A government’s job is to raise resources, primarily through taxes, and use that to deliver what are called public goods and services. (This is Union government. Resources have to be transferred to States and public expenditure, including capital expenditure, also occurs at State-level.)
The basic premise should be that able-bodied people in working age groups aren’t voluntarily poor. They are poor because they lack access to various inputs and any Union government that forgets the 115 aspirational districts and caters to Mumbai and Delhi abdicates its responsibility. Therefore, households (not just in those districts) have to be empowered through bank accounts, financial products (pensions, health and life insurance), electricity, telephone connectivity, LPG connections, toilets, skills, education and so on. These inputs, meant for individuals/households and for targeted beneficiaries, must be subsidized.
Every citizen of India, wherever he/she happens to reside geographically, must have access to this minimum set of individual and collective public goods. It improves “ease of living” and the 2018-19 Budget builds on what the government has done through other instruments.
In addition, there are also inputs that are collective in nature – rural roads, infrastructure for haats (not just mandis), national highways, railways, other forms of transport connectivity. There must also be special attention for specific segments, women, SCs/STs, senior citizens. This is the Sabka Saath, Sabka Vikas inclusive agenda and improves quality of life and productivity for all citizens. Every citizen of India, wherever he/she happens to reside geographically, must have access to this minimum set of individual and collective public goods. It improves “ease of living” and the 2018-19 Budget builds on what the government has done through other instruments.
Every enterprise, regardless of where it is geographically located and regardless of its legal form, must have an enabling environment. This logic applies to farmers, as well as MSMEs.
This is one plank. For able-bodied people in working age groups, given large degree of informality in the economy, it is impossible to delink the enterprise from the individual. More than 95% of MSME enterprises have no legal identity. Corporate legal identity is an even smaller slice. Thus, the second plank of “ease of doing business”, not to be interpreted as something being done only for the corporate sector. Every enterprise, regardless of where it is geographically located and regardless of its legal form, must have an enabling environment. This logic applies to farmers, as well as MSMEs. It encompasses eNAM (national agricultural market), GeM (Government e-Marketplace), better prices for farm products (MSP), unbundling land rights to allow for leasing (helps in providing collateral), land titling, MUDRA, easier exit provisions for MSMEs under IBC (Insolvency and Bankruptcy Code). DIPP’s ease of doing business initiative, self-certification and use of technology to reduce harassment through human interfaces, electronic assessment of tax returns and much more. Here too, there is clear continuity between what the government has been doing and the 2018-19 Budget.
Had commentaries taken cognizance of a variety of government initiatives, already undertaken, they would have understood the Budget better. Nothing special is being done to impart populism in an election year.
Moving away from enterprises, if the government is now going to make provident fund contributions across the board, this is an extension of what has already been partially attempted. Ditto for fixed-term contracts or reduction in the peak corporate tax rate to 25% for almost all MSMEs. Had commentaries taken cognizance of a variety of government initiatives, already undertaken, they would have understood the Budget better. Nothing special is being done to impart populism in an election year.
A government that believes it is there for the long haul doesn’t believe in myopic behavior.
The challenge is to ensure all this without deviating from the path of fiscal consolidation. By this, one doesn’t only mean the fiscal deficit/GDP ratio of 3.3% in 2018-19, but also acceptance of recommendations of the Fiscal Reform and Budget Management Committee, such as reduction in Union government debt to 40% of GDP. In the past, other Finance Ministers have produced dream Budgets. The dream lasted for a few days and then became a nightmare. One could have produced a “dream” Budget by slashing peak personal income tax and all corporate tax rates to 25%. The markets would have gone into a tizzy, but the government would have abdicated its responsibility to the country. Irresponsible behavior is understandable for a government that doesn’t believe it is there for the long haul, so that successor governments have to bear the consequences. A government that believes it is there for the long haul doesn’t believe in myopic behavior. Building on initiatives since 2014, this Budget builds India’s future and that of its citizens and enterprises.
(Bibek Debroy is an economist and writer. He is the Chairman of the Economic Advisory Council to the Prime Minister of India.)