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Modi's influence on making a pro-poor Budget

March 08, 2016 08:03 IST
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The influence Prime Minister Narendra Modi wielded on Budget proposals deserve close attention, says A K Bhattacharya.


The feasibility of the revenue numbers projected in the Union Budget for 2016-17 is under intense scrutiny.

Legitimate questions are also being raised about the quality of fiscal consolidation proposed to be achieved next year, even as one notices how the government's total capital expenditure as per cent of gross domestic product or GDP will go down in 2016-17.

But little discussion is taking place about two key issues surrounding the framing of the Budget.

One pertains to the impact the Economic Survey may or may not have had on the Budget proposals.

And the second issue pertains to the degree of influence Prime Minister Narendra Modi may have wielded on the Budget exercise.

It is by now well-known how the Economic Survey, presented just three days before the Budget, had tilted in favour of a moderate fiscal consolidation path, which could help the government find more resources for increased public investments.

The Budget, however, stuck to the fiscal deficit targets set for both 2015-16 and 2016-17.

Was this a total rejection of what the Economic Survey had suggested? Not really.

Remember that the Survey had asked for a review of the medium-term fiscal framework and the Budget announced the setting up of a committee to do just that.

It is true that the Budget fulfilled the fiscal deficit target of 3.9 per cent of GDP for 2015-16 and promised to keep the fiscal deficit within 3.5 per cent of GDP as promised earlier.

But then the formation of the committee to review the medium-term fiscal framework is a clear indication that going forward the finance ministry would prefer a range instead of a fixed number for the fiscal deficit.

In a broader sense, therefore, the Survey did have a role in guiding the Budget's perspective on the road map for fiscal consolidation.

Where the Economic Survey does make a visible and immediate impact on the Budget is in the area of taxation.

The Survey had made two significant observations - how the economically better-off people in India enjoy a huge amount of subsidies and, more significantly, how the well-off people benefit more from tax exemptions compared to those who are lower down the income ladder.

The Budget seems to have accepted this principle.

Thus, a new tax at the rate of 10 per cent is to be levied on those receiving dividends of more than Rs 10 lakh a year.

Simultaneously, the income-tax surcharge on annual taxable income of over Rs 1 crore will now go up from 12 per cent to 15 per cent.

And finally, tax is proposed to be levied on the interest component of a part of the withdrawn employees provident fund balances. It is likely that the tax on provident fund balances may be rolled back, but the other two proposals have faced no resistance and their enforcement would also mean the acceptance of a principle enunciated in the Survey.

That leaves us with the question of the influence the prime minister wielded on the Budget.

Imagine a director in a company who is due to unveil a new product in the market and his chairman announces a day before the launch that all the shareholders of the company would judge the chairman by the success or failure of that launch!

Modi in his Mann Ki Baat on February 28 did something similar. He said the whole nation would judge him by the Budget to be presented on Monday.

That statement certainly put tremendous pressure on the finance minister and his team in North Block.

The public perception that the finance minister's Budget would determine if the prime minister would pass the test of the people, however, did not reveal the whole truth.

The prime minister, by all accounts, played a crucial role in each of the major initiatives that the Budget took.

That was also perhaps why the finance minister quickly responded to the pushback to his proposal on taxing provident fund balances by saying that he would let the prime minister decide the issue.

Rarely has a finance minister openly let the prime minister decide on the government's response to criticism to a Budget proposal.

Even rarer is the prime minister's message on Saturday that the finance minister would resolve the controversy over the tax issue in his reply to the Budget debate on Tuesday.

Add to this the fact that Narendra Modi's name was not invoked even once in the entire Budget speech this year, compared to twice in the speech in 2014 and once in 2015, the role of the prime minister in Budget making this year acquires a more interesting dimension.

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