Budget’s TEC theme will aid in economic revival

By Rana Kapoor

The expectations from finance minister Arun Jaitley’s fourth Budget were high, particularly on the back of the demonetisation drive. The Budget has certainly delivered on these expectations and has rekindled hopes of a sustainable and inclusive economic recovery while adhering to fiscal rectitude.

SUPPLEMENTING THE FISCAL HOLY TRINITY WITH TEC
Continuing with the previous budgetary efforts of creating growth, preserving a sustainable savings investment balance, and destroying demand side inflation, the FY18 Budget ups the ante through its TEC agenda of transform, energise, and clean India. To elaborate:

Transform the quality of governance and quality of life

Energise various sections of society, especially the youth and the vulnerable, and enable them to unleash their true potential

Clean the country from the evils of corruption, black money and non-transparent political funding In addition, to build on the objective of digitisation, the Budget has taken several steps for a less-cash behavioural nudge. While the Rs 3 lakh cap on cash transactions will set the boundary, the relaxation of tax on presumptive income, waiver of service charge on e-tickets, and further tax exemptions for PoS (point of sale) installations will help in this behavioural transformation. Moreover, the Budget also announced the creation of a Payments Regulatory Board and Aadhaar Pay, a merchant version of Aadhaar-enabled payment system.

THE IMPERATIVE OF JOBS-CREATING GROWTH
With the Economic Survey highlighting India’s demographic dividend, internal migration and inequality, the Budget has rightly focused upon job creation. Some key announcements stand out:

The 5% relaxation in corporate tax for MSMEs and redefining MSMEs through a turnover criteria will be a significant game changer. This, along with the GST, will help create employment.

The provision of infrastructure status to affordable housing will create forward and backward linkages with the rest of the economy. I expect the banking sector’s appetite to lend to this sector to get a boost, thereby facilitate easier credit access.

Abolishing the FIPB will further simplify and improve access to FDI across various sectors of the economy, in particular infrastructure, manufacturing and consumption-driven sectors. Besides the above-mentioned growth enablers, the Budget has balanced the need for reviving consumption (through income tax relaxation for the aam aadmi, higher allocation for MGNREGS) and persisting with the objective of public capex-led investment revival via ~11% increase in allocation for capital spending.

STICKING TO FISCAL RECTITUDE
Even as the Budget strikes a balance between supporting consumption and kick-starting investments, it does not lose focus on fiscal rectitude, which, in my opinion, acts like the central nervous system for overall macroeconomic and financial stability.

The finance minister eschewed from populism by displaying prudence in calibrating the extent of fiscal consolidation at 3.2% of GDP, despite the transitional adverse impact of demonetisation and initial GST migration-related uncertainty. It’s heartening to know that the Budget has already incorporated some recommendations of the FRBM Review Committee and already exceeded the mandated target for revenue deficit of 2% of GDP on the downside in FY18.

FINAL THOUGHTS
Overall, the Budget focuses on 10 critical themes of farmers, rural population, youth, the poor and the underprivileged, infrastructure, financial sector, digital economy, public service, prudent fiscal management, and tax administration. These 10 focus areas will help boost growth, enhance productivity, further rein in inflation, and infuse transparency into commercial activities, delivery of public services, and political funding.

The combination of fiscal discipline, TEC agenda, consumptioninvestment revival, and emphasis on transparency should create a virtuous cycle of higher, inclusive and sustainable growth. I rate the Budget a resounding 9 on 10.

The authour is Managing Director YES Bank. Views are personal.