« Back to articlePrint this article

Budget 2016: Some dos and don'ts

February 11, 2016 13:26 IST

Sticking to basics might just make for a better Budget at this point in India's economic and political trajectory, says Shankar Acharya.

By now, the finance minister has been inundated by advice, from within the government and outside. The counsel ranges from spending more to stimulate the economy to announcing major economic reforms. In truth, he should bear in mind four over-arching considerations.

First, the Budget is only one component of economic policy at his command; most of economic policy is conducted throughout the year and outside the Budget. For example, the successful legislative and administrative implementation of the Goods and Services Tax (GST) is likely to be much more important than anything in this Budget.

Second, there is much merit in delivering on past Budget initiatives, such as the bankruptcy bill or the promise of corporate tax reform.

Third, a Budget is more likely to be good for the economy if it sticks to basics: Moderate fiscal consolidation, sensible tax proposals and judicious expenditure programming.

Finally, and perhaps most importantly, in a fragile global economic context, the Budget should err on the side of prudence. That said, here is a suggested list of "dos" and "don'ts".

Read our full coverage on Union Budget 2016

Some 'do's'

Some 'don'ts'

This is the slippery slope back to the protection-ridden, high-cost economy of the 1970s and 1980s, not the highway to 'Make in India'. It is imperative that the Budget (and off-Budget government policies) resist further pressures for tariff and non-tariff measures to protect specific industries from import competition.

Further reduction will simply disrupt the smooth inflow of tax revenues throughout the year and complicate the management of government finances.

Read our full coverage on Union Budget 2016

Above all, the Budget should eschew adventurism in taxation. The retrospective tax amendments of 2012 are still taking their toll on business confidence in India. Nor did the earlier experimentation with financial transactions taxes (such as on cash withdrawals) and fringe benefit tax lead to anything but complexity, confusion and avoidable economic pain (with little revenue gain).

All this sounds pretty mundane and perhaps even boring. Where is the clash of cymbals, which might energise the party faithful and rekindle animal spirits? Well, sticking to basics does tend to leave out the drama. But, it might just make for a better Budget at this point in India's economic and political trajectory.

Put another way, just as the Hippocratic Oath enjoins medical practitioners to "do no harm", so with budget-making. A finance minister who pays due heed to that principle, may also end up doing a power of good!

Shankar Acharya is Honorary Professor at ICRIER and former Chief Economic Adviser to the Government of India. These views are his own.

Shankar Acharya
Source: source image