Current Public Administration Magazine (January - 2017) - Algebra of Union Budget 2017-18
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Financial Administration
Algebra of Union Budget 2017-18
It’s that time of the year when every politician, journalist, analyst, businessman, industry bigwig, professional, farmer, home-maker and teenager wants to be finance minister for a day. Everyone and his best friend thinks they can conjure a Union budget that will magically solve the pressing problems of the day. Truth be told, most of us have an incredibly self-centric view of things and (consequently) impose our political affiliations, pet disgruntlements and favourite biases on our budget fantasies.
So, while the economists may want to focus on the fiscal deficit, stock market pundits are scared about whether long-term capital gains on equities will be taxed. Industrialists are lobbying for excise duty (and subsequently GST) slabs to be lowered (and customs duty hiked) for their sectors, even as they want the government to spend more on procurement/ordering. Householders are curious whether income tax slabs will be changed and exemptions increased. FPIs are running scared on GAAR and whether it will lead to double (or is it triple) taxation on their Indian operations. Bankers want to see higher allocations towards re-capitalising PSU banks and tax exemptions on housing loans.BJP Leaders Including Shazia Ilmi & Others Named As Independent Directors In Top PSUs All this, and much more, will be on display when the budget is unveiled on February 1. But what really matters more than the intricate “arithmetic” of the budget is the “algebra” or the policy reforms in administration and taxation that India so desperately needs. To be fair, a budget is more of an accounting statement and not a formal policy document. But the underlying message it sends out will surely define the policy evolution of this government as it completes half its term.
The policy events of the trailing year indicate a structural shift in policy evolution. Despite the obvious practical difficulties and persistent criticism, it is amply clear that demonetisation has found popular support. We believe this may convince the government to take bold steps that, to conventional minds, run the risk of populist backlash. Policy evolution may break into a sprint. If so, India will be well on the way to the economic future of our dreams. We will keenly watch out for six key themes in the policy algebra of Budget FY18.
First, the shift towards making the economy more “organised” has to be accelerated. This is all about broadening the tax base (income tax reforms and GST), making formal jobs easier to create (or destroy), pulling in “unorganised” small and micro enterprises into the formal credit system. This also involves correcting the under-declaration of business revenues (and profits) of the relatively larger and prosperous parts of the economy (professionals, shopkeepers, traders, political parties and large farmers) via fair tax traps such as GST and the shift towards a less-cash system. Simplifying and rationalising tax laws is a significant (and overdue) first step in encouraging more participation in the formal economy. We need to eliminate regulatory cholesterol.
Second, massive subsidy reforms have to be initiated such that better targeting (and savings) accrue. At Rs 2,50,000 crore, subsidies added up to 17.5 per cent of all non-plan expenditure of the FY17 budget. Food alone accounts for over half this sum and is crying out for a 100 per cent switch to a direct benefit transfer (DBT) regime. All government to citizen benefits/transfers should quickly migrate to Aadhar (MGNREGS, interest subsidies, government hospitals, government schools, life insurance, accident insurance, old age pension, crop cover, livestock cover). The ongoing national drive against corruption is incomplete unless subsidy drainage is plugged. Eligibility for subsidy must also be revamped. A number of subsidy recipients do not actually deserve them, even as large swathes of deserving folks miss out on benefits. This is true for currently subsidised items (food, fertilisers, kerosene, LPG) as well as items where subsidies are not explicitly delivered (power).
Third, the infrastructure thrust has to accelerate across the country. There is no way Indians can earn higher incomes, increase economic activity, improve living standards and drive up productivity unless we have more (and better) roads (state and national highways), urbanisation (we have only 50 cities with a million residents versus China’s 375+), urban infrastructure, railways, airports and ports.
Fourth, public goods comprising “soft infrastructure” are as important as hard infrastructure for the India story to be sustainable. This is where high quality and national uniformity of delivery is even more difficult, especially since many of these areas are under the control of states, either exclusively or jointly via the concurrent list. These include primary education, healthcare and medication, water supply, sanitation and drainage and law and order.
Fifth, the welcome emergence of a “firm” or “hard” state means that elites and cliques that have enjoyed living off the erstwhile “soft” state face higher (unmanageable) costs of doing so any more. The list of undeserving beneficiaries of policy largesse or administrative inefficiency is a long one. Here is but a short subset: Beedi barons, benami land holders, corrupt government officials (and their businessmen friends), most political parties, ex-MPs, organised labour unions, bank loan defaulters and, not to forget, seekers/lobbyists of various entitlements and benefits from the state.
Sixth, the use of technology by the government has to increase rapidly. None of the changes above can be reliably and sustainably implemented via manual or traditional processes. IT-enablement of government-citizen interfaces, back offices, monitoring and reporting systems is not just a productivity enhancer, it is what makes government operate at an acceptable or threshold level of acceptance in a connected world. The combination of biometrics, mobiles, Aadhar, e-payments and IT-enablement of government offices holds the potential of making all interactions with government more reliable, quicker and easier.
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