The policy directions in the speech of the finance minister introducing the Union Budget 2017-18, presented in the backdrop of demonetisation but more as a follow-up to it, constitute a paradigm shift to clean up the Indian polity. The pivot of the new paradigm is the endeavour for transparent economy and politics.
First, the most far-reaching reform is in the funding model of political parties. Recently published data shows that whether it is ruling party or the Opposition with any ideology, they had received most of their funds through opaque cash donations up to Rs 20000. The finance minister has adopted the Election Commission’s recommendation to limit the individual cash donation to Rs 2000 for political parties. The second, and the most important measure is the proposed bonds for political funding. The bonds can be bought and donated by any person to any political party without the donor’s identity being known. While the donor’s identity may not be known in the hands of political parties, the fund will be clean. With the cash economy contracting because of demonetisation, the bond scheme has potential for success.
Second, the direct tax policies in the Budget take the demonetisation philosophy of war against black money forward by creating an ecosystem against tax evaders and rewarding the honest taxpayers. This is the first budget speech ever where the minister cited irrefutable data to admit mass and massive tax evasion and confessed how disproportionately the huge cash economy has facilitated evasion. The demonetisation decision hit the cash economy and forced the so far unbanked cash into the banks and forced it to pass through the tax net. The figures of bank deposits disclosed by the minister showed that the tax base would increase exponentially in future. This is the most far-reaching reform so far without which there was no way the unmonitored cash that was promoting false and jobless growth would have been banked and formalised. The tax and banking transaction policies declared in the budget speech for migration of substantial cash payments into digital ones will consolidate the gains of demonetisation. While tax cuts for the middle class which had borne the brunt of the demonetisation was expected, the simple one-page tax return for those with non-business income of Rs 5 lakh and below makes compliance easy for the middle class.
Third, the beneficial impact of internal structural reforms achieved by the government before and in the Budget have not been fully grasped in the Budget discourse. The merger of the Railway Budget, a colonial continuity, in the General Budget has made integrated policymaking possible and efficient allocation of resources for multimodal transport planning necessary for comprehensive development of Indian transport system. The advancing of the Budget by one month has made the budget approval a one-step, instead of a two-step process — first, the interim vote-on-account and then the final appropriation — enabling the spending to commence without delay from the first day of the budget year. Another important reform is the reclassification of spending as capital and revenue, instead of as plan and non-plan spend, as with the Planning Commission no more, the latter reclassification had become irrelevant.
Fourth, the Budget undeniably endeavours to build the ecosystem for reorienting the Indian economy which had lost track of its job-producing potential since 2004. Jaitley has spoken of large allocations for rural, agricultural and infrastructure sectors and has doubled the bank funding for the micro businesses through the MUDRA scheme, all of which have the potential for employment generation.
Fifth, a significant aspect missed in the budget discourse is that the entire indirect tax budgeted has been just an assumption, pending the GST rollout which stands deferred to July. Only when GST is rolled out will reliable numbers of indirect tax revenue emerge. Till then, the budget estimates will remain incomplete. Finally, while some commentators have hailed the Budget as ‘change making’ and ‘game changing’, an in-depth comment on the Budget will have to await scrutiny of the huge volume of budget papers and the numbers hidden in them. Yet, thanks to the hard game of demonetisation which has made it possible, the Budget aims for a financially clean polity and economy.
Chartered Accountant and eminent commentator on political and economic affairs