India's Finance Minister Arun Jaitley (center) arrives at the parliament to present the federal budget for the 2015/16 in New Delhi in this file photo taken on February 28. — Reuters Rajendra K. Aneja
Dr. Hiten Mehta was distraught. “I will be paying out more every year, even though no income taxes have increased in the new budget,” he lamented.
The India budget for 2015-16 has been generally hailed as progressive. Yet it has many hidden weaknesses.
Finance Minister Arun Jaitley has not increased any obvious income taxes. However the increase in service tax by almost 2 per cent on many services will erode the incomes of citizens.
While the finance minister's efforts control deficit at around 3.4 percent is laudable, this may not be easy in practice, considering that the government wishes to launch major infrastructure projects in the new fiscal year.
The inflation target of 5 percent assumed by the finance minister has to be monitored closely. Due to weak logistics and unscrupulous hoarding, it is difficult to control prices in India, even when there is an abundant production.
Inflation in India is principally commodity- led and as long as there is wastage and price manipulation inflation will not be harnessed.
The GDP growth rate of 8 to 8.5 percent forecast by the finance minister is also a wee ambitious. If this growth rate falters then expected revenues will not ensue. This will dampen investment plans.
He must be commended for planning to build 60 million public toilets in India, which 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. India's cities like Mumbai and Bangalore are collapsing due to poor connectivity and transport facilities.
Petrol and diesel prices have risen after the budget presentation. When global prices of oil have crashed during the last 8 months from $140 per barrel to $60 per barrel, it is bizarre that prices of petrol have increased in India.
There is a proposal to reduce corporate taxes from 30 percent to 25 percent over the next four years. However, a beginning should have made this very year to signal strong intent. Like many other proposal in the budget, e.g. general sales tax, among others, the proposal to reduce corporate taxes has not been discussed adequately.
Leera Kalreja, a finance director in a Textile company, sums up the budget “as superficial”.
“The increased surcharge of 2 percent will not go down well with professionals,” she adds. “Moreover the tax structure should have been simplified, instead of being trapped by a maze of deductions and allowances.”
The FM has lost an opportunity to present a path-breaking budget, she said. Finally there is just no focus on population control. In the year 2020 India will be the most populated country in the world. However, unemployment, urban congestion, 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 keep getting stretched. The budget is full of good intentions. It reads more like an election manifesto than a budget with specific plans and date-targets.
“The government had such a strong mandate, it could have acted more decisively and liberalized boldly,” said Dr. Mehta. True. Hence there is an under-current of dissatisfaction with the budget proposals.
So, whether the budget will deliver growth, jobs and lead to lower prices, yet remains to be seen.
— The author has worked for Unilever in Asia, Latin America and Africa. A Sir Dorabji Tata Scholar, he has authored a book, “Agenda for a New India”. He studied at Harvard Business School and Harvard John Kennedy School of Government.
