The recently released Indian budget has been generally hailed as progressive. Yet the budget has many hidden weaknesses. The Finance Minister Mr. Arun Jaitley has not increased any obvious income taxes. However the increase in service tax by almost 2 percent on many services will erode the incomes of citizens. Whilst the efforts of the FM to control the deficit at around 3.4 percent is laudable, in practice this may not be easy considering that the government wishes to launch major infrastructure projects in the new fiscal year.
The inflation target of 5 percent assumed by the FM has to be monitored closely. Due to weak logistics and unscrupulous hoarding, it is difficult to control prices in India, even when there is abundant production. Inflation in India is principally commodity led and as long as there is wastage and price manipulation, inflation will not be controlled.
The GDP growth rate of 8 to 8.5 percent forecast by the FM is also a wee bit ambitious. If this growth rate falters, then the expected revenues will not ensue, which will dampen investment plans.
The FM must be commended for planning to build 60 million public toilets in India. Public toilets are required not merely in the rural areas, but also in metropolitan cities like Mumbai, New Delhi, Calcutta, Chennai, etc. Even the road infrastructure has to be improved significantly in the cities. Thus, infrastructure development budgets should not be earmarked exclusively for rural areas. Indian cities like Mumbai and Bangalore are collapsing due to poor connectivity and transport facilities.
Petrol and diesel prices were increased after the Budget presentation. As the global price of oil has fallen from $140 per barrel to $60 per barrel over the last eight months, it is bizarre that the price of petrol has increased in India.
There is also a plan to reduce corporate taxes from 30 percent to 25 percent over the next four years. However, a beginning should have been made this very year to signal strong intent. Like many other proposals in the Budget, e.g. General Sales Tax, etc., the proposal to reduce corporate taxes has not been fleshed out adequately.
Finally, there is no focus on population control. In the year 2020, India will be the most populated country in the world. However, unemployment, urban congestion and rural poverty will cripple progress in the country. India has to make a determined bid to control its population by encouraging family planning, otherwise its lean resources will continue to be stretched.
The budget is full of good intentions. However, whether it will deliver, remains to be seen.
