Finance Minister promises to maintain fiscal discipline with heavy spending on infrastructure

Swaminathan S. Anklesaria Iyer
When the economy performs well, the finance minister’s numbers also increase. In the last financial year, GDP growth was 8.2 percent. Tax collection increased and the Reserve Bank gave a huge dividend. Thanks to all this, Finance Minister Nirmala Sitharaman has done wonders on both political and economic fronts. She has hit many targets with one arrow and she deserves applause for this. Politically, this is a ‘save the government’ budget. Some experts were speculating that if BJP did not appease Nitish Kumar and Chandrababu Naidu, they could topple the government. In the budget, a lot of funds have been announced for Nitish’s Bihar and Naidu’s Andhra Pradesh, which will satisfy both for some time, even if their demand for special status is not met.

From a policy perspective, this is the same as the previous budget. There is no mention of any major reform in it. And when GDP growth is so great, why take such a risk. Actually, the message of this budget is policy stability in the medium term. The budget is excellent in terms of macro-economy. The fiscal deficit has been promised to be brought down to 4.9% from last year’s 5.9% in this financial year. This target is commendable with the proposal of a huge expenditure of 3.4% of GDP on infrastructure. The allies have been made happy in the budget. Schemes to increase employment have been presented. There are incentive schemes for tourism. Along with all this, there is also tax relief for the middle class supporting BJP.

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Yes, long term capital gain tax has been increased from 10 to 12.5%, but it is much less than the 20% in the US. The benefit of indexation on capital gains from real estate has been removed. This may increase the interest of those investing in the property market in the stock market. Security transaction tax on futures and options has been increased. At the same time, short term capital gain tax on some assets has been increased from 15% to 20%. This will recover the concessions given by the government in some items. Shareholders will now have to pay tax on buyback, as has been happening earlier in the case of dividends.

Import duty on gold and silver has been reduced to 6%. This should have been done in previous years as high import duty has led to smuggling of these metals and has also encouraged money laundering. Employment remains a politically sensitive issue. The budget has announced incentives for employers and first-time employees. The government will reimburse companies up to Rs 3,000 per month for their Employees Provident Fund liability for two years. The finance minister estimates that this will create 50 lakh new jobs, but will it happen?

After all, why would companies recruit people they don’t need for a nominal subsidy? And why does the finance minister think that paying a month’s salary to first-time job seekers will create 2.10 crore jobs? It has to be understood that these people are desperate for jobs in the organised sector, so why should they get subsidies? The finance minister’s internship programme is good, but it will only be partially successful in overcoming the shortage of skilled people in the country.

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The Finance Minister’s list of next generation economic reforms is also disappointing. Though this list is long, these are good intentions. Promises were made about them, but no action plan was presented. Now take the Mumbai-Ahmedabad bullet train project, which is also close to the Prime Minister’s heart. In the last 10 years, it has not been completed due to problems related to land acquisition. The country needs such next generation reforms.