Economy Watch – Budget 2017 and its place in history !!!

On 1 July, if all goes to plan, the country would have formally transitioned to the goods and services tax (GST) regime. By the sheer path-breaking nature of the tax reform initiative, which for the first time economically unifies the country, GST will have a special place in India’s modern economic history. What about Budget 2017? For several reasons it, too, is a watershed moment.

Firstly, advancing the schedule is more than just a break with a colonial hangover. It actually gives an administration a full year to spend the money it has earmarked for various projects; of course it also means more work for our bureaucrats, who have long been used to a nine-month spending cycle.

Second, there is a fundamental reset to the nomenclature—plan and non-plan have been abandoned and instead replaced with revenue and capital expenditure. But this is much more than just a change in classification. The idea is to move to an outcome-oriented approach and the finance minister has announced that the Niti Aayog will monitor it.

Third, this budget is the likely template for the future. Given that GST rollout is imminent, the finance minister wisely chose not to tinker with the indirect tax rates. And most don’t realise, but the movement in indirect tax rates and slabs inevitably generate the news and hype about budgets; which is probably why most people came away feeling underwhelmed.

In that sense this year’s budget, sans tax rate changes, was sanitized to begin with. It focused on spending and listing out the government’s priorities within the fiscal sector: social sector with a particular accent on the poorest of the poor, farmers, rural sector and roads.

Going forward, this will be the likely contour of future budgets. Not a bad thing really. After all it is time Parliament and the country focused on government spending—so far it has been in the news mostly for the wrong reasons, like misappropriation of money.

Fourth, this budget has renewed the new-found focus on agriculture; especially the emerging agriculture economy, which includes new alternatives like horticulture, dairying and so on—all of which are vulnerable to market volatility. The Indian farmer is probably the biggest risk-taker in India right now, but the least rewarded; they are a proud people who don’t want largesse (as some commentators seem to think). By promising the introduction of derivatives as a hedge against price volatility and delinking perishables from the shackles of the Agricultural Produce Marketing Committee, the budget has set the ball rolling in integrating farms into the market economy (read that as the formal economy, with its attendant advantages).

Fifth, and finally, this budget marks the flowering of the federation. The 14th Finance Commission set the stage for the govt. to walk the talk on cooperative federalism, and the last two budget did precisely that; GST is just another example of how the centre and states are beginning to do things in tandem. And with the shift to outcome-based budgeting (as explained earlier) the allocations of public money has moved from departments to stakeholders—like states and the third tier, panchayats and urban local bodies (though this is very inadequate at the moment).