Budget 2015: Tapping fuel duties to pave way for growth, says Neelkanth Mishra

There were so many moving parts in this year’s Budget that discerning the underlying trends is not easy. The government’s acceptance of the unprecedented increase in statutory tax transfers to states recommended by the Finance Commission means that despite a 16% increase in gross tax receipts, the central government’s net receipts increased just 1%.

This was to be offset by reduced spending on some centrally-sponsored schemes and grants to states, but the declines were smaller than expected. And to complicate matters, we estimate fiscal deficit pushed from the previous fiscal year into the current fiscal year, necessitated a sharp contraction in discretionary spending: plan spending fell a massive 44% this year. This makes year-on-year comparisons difficult.

One can understand the incredulity of someone looking at the underwhelming headlines. Over and above the gains on excise on diesel and petrol, service tax rates were increased, exemptions removed on many categories of services and surcharge on corporate tax as well as income tax for the super-rich were hiked.

The government also pushed up its fiscal deficit target. And yet it did not announce any great expenditure plans. Where will all this money go?

It goes to the states. The Centre has just written them a cheque of nearly Rs 1.4 lakh crore (collectively), or 1% of GDP. So someone trying to evaluate the beneficiaries of the fiscal stimulus now has to work through various state budgets.

There is a huge Rs 1.5 lakh crore increase in the government’s plan expenditure, mostly on roads and railways. Some of this may be hard to spend quickly, but the sequestering of Rs 40,000 crore every year from duties on petrol and diesel improves visibility of road construction in the economy. Put together, growth in the coming fiscal year is likely to be stronger than this year.