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Our Take on the Budget: What Just Happened?


There’s always things to like and dislike about budgets and governments. How could they do this? What about that? These are considerations, sometimes petty and sometimes facepalm material, and will keep media houses busy for ages. But let’s step back a bit.

What did Jaitley really do? He didn’t cut taxes. At Capital Mind, we didn’t expect him to. It’s better done in a full year budget, and this one will only last eight more months. He did give a small tax benefit by raising slabs, but what we really want is a better, less exemption heavy Direct Tax Code.

He didn’t really address the fiscal deficit. It’s big, they say. But a good portion of it is interest costs and subsidies. Subsidies aren’t changing right now. Nothing that we heard long ago – about how we can cut subsidies to zero, about how inefficients they are – have resulted in policy action. We only got a promise that they will fix things by a more focussed Food and Fuel subsidy. We must wait for these details.

He also promised to fix Food Inflation by reforming the FCI and the Public Distribution System. This is very tough in a good year (like 2013). In a drought year like 2014, will he be able to? We sure hope so, but hope is different from a budget. There are no budgeted costs for contingency, for what the reform will cost, or for a drought that will impact finances. (It’s not conjecture – the monsoon is 43% below normal right now).

The NREGA issue – of how come we “guarantee” employment by paying people for doing very little – has been addressed only by saying that the money will be spent but for “more productive, asset creating and linked to agriculture”. This needs a lot more clarity.

He tinkered with taxes. Much of this has to do with tax litigation. They moving of things around is to reduce the messy cases that are stuck in courts. There is also a lot more clarity on taxation, the due process and penalties. He’s also promised single-window-customs clearance, which should ease regulatory pain for importers. And better tax assessment, including advance rulings and defined committees for settlement. Will this be a game-changer or will it just become another hampering layer? We’ll hope for the former.

Jaitley’s allocations surprise us. Rs. 100 cr. for the Metro in Lucknow. For that to be useful, you will need a lot of luck, and now.  And then, they want to spend Rs. 500 in training elementary school teachers; but to set up Five IITs and Five IIMs the allocation is: Rs. 500 cr. Many large things have been given allocations like Rs. 100 cr. and it’s not apparent how any of this will be enough.

What the budget did do, was provide some clarity on the way forward. Easing the tax litigation process is good, and creating single window clearances for stuff is good. There is also a single government portal planned by December 31, where you’ll be able to get all the clearances you need to run a business, and pay fees online.They want to create a bankruptcy law for small companies which can shut down faster. They will create a shipping policy for inland and coastal shipping encouragement. The goal is to reduce friction in doing business, and these are good directional steps.

But at the same time there was no clarify on asset sales. They want to disinvest Rs. 43,000 cr. in the year, and then another 15,000 cr. from their ownership of non government companies. The last government managed to do only 40% of their targets last year, despite a roaring market after December. It’s not apparent how this government will do it, when they have just 8 months to go.

On the downside, while they want stable tax regimes, they’re reintroduced taxes on mutual funds held for a year, creating confusion in an industry that manages more than Rs. 700,000 cr. They have added more exemptions and tinkered with duty changes. These seem incongruent to the election promises that brought them to power.

There are a lot of built in promises, and while we should give the government the benefit of doubt, they definitely didn’t meet the high expectations we had. Maybe we expect too much of governments. It’s probably time they just stood still, so the rest of us can do greater things.


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