PRESENTING the third Budget of the Bharatiya Janata Party-led government, Finance Minister Arun Jaitley referred at the outset to the adverse global economic situation to buttress his claim that the present Central government had performed exceedingly well despite such an environment. Leaving aside the validity of this claim, the Union Budget may have reasonably been expected to provide a strong stimulus to the economy by boosting government expenditure in an environment where, in his words, “The risks of further global slowdown and turbulence are mounting”. A look at the Budget numbers suggests that the Finance Minister has chosen to refrain from providing such a stimulus, though there has been much hype in the media about big spending on infrastructure and an avowed thrust towards agriculture, rural development and the social sector. The Budget Estimate (B.E.) of total expenditure for the financial year 2016-17 is Rs.19,78,060 crore as against the Revised Estimate (R.E.) of expenditure for 2015-16 at Rs.17,85,391 crore, an increase of 10.79 per cent. Considering that the Minister expects the nominal gross domestic product (GDP) to grow at a rate of 11 per cent, this actually constitutes a marginal decline, in real terms, of the total Budget expenditure as a share of GDP. The reluctance to increase budgeted expenditure adequately comes from an obsession with holding down the fiscal deficit to 3.5 per cent of GDP in 2016-17.
In principle, a chosen targeted level of the fiscal deficit (expressed as a percentage of GDP) could still have been achieved even while budgeting for a higher level of expenditure if the government had been willing to raise resources through appropriate and effective taxation of the well-to-do. However, this is precisely what the government has been unwilling to do. In fact, the Budget proposals for 2016-17 imply, according to the Budget papers, a loss of direct tax revenue of around Rs.1,060 crore. One may note here that the R.E. of direct tax revenues for 2015-16 is short of the B.E. by Rs.46,000 crore, the shortfall in corporate income tax amounting to Rs.18,000 crore and that in personal income tax to Rs.28,000 crore. There is, of course, no wealth tax since it was abolished last year. One might consider this a little odd, considering the enormous inequality of wealth that characterises our country.
The huge shortfall in direct tax revenues has been more than compensated for by a sharp increase in excise duty collections in 2015-16, with the R.E. in this regard being higher by almost Rs.55,000 crore at Rs.2,84,142 crore as against the B.E. of Rs.2,29,808 crore. This was mainly on account of the benefits of lower international oil prices not being passed on to the consumer but instead being appropriated by the government through corresponding changes in excise duty. If one compares the actuals for 2014-15 with the R.E. for 2015-16, one finds a whopping increase of Rs.94,190 crore in Union excise duty as against a far more modest rise of Rs.24,045 crore in corporation tax revenue and Rs.33,318 crore in income tax revenue. Incidentally, when GDP is measured in market prices, it includes indirect taxes less subsidies, and the sharp rise in indirect tax revenue accounts for a part of the increase in nominal GDP between successive years.
The trend of increasing reliance on indirect taxes and continuing concessions in direct taxes has been carried forward this year as well, with the Finance Minister stating that his proposals on indirect tax rates will result in an increase of revenue of the order of Rs.20,670 crore. Besides this regressive trend, there is also a serious problem with the Finance Minister’s proposal to offer amnesty to tax evaders, permitting them, within a so-called window period of six months commencing on June 1, to disclose hitherto undisclosed incomes, pay taxes on such incomes at a total rate of 45 per cent and obtain complete immunity from prosecution. The BJP had opposed a similar proposal in the Union Budget of 1997-98, the voluntary disclosure of income scheme, brought forward by the then Finance Minister P. Chidambaram. Such proposals, which keep emanating from time to time, reflect the lack of political will to deal sternly with tax evaders. The warnings that accompany such proposals, of strong action if advantage is not taken of the offers, lack credibility. Besides, such proposals discourage the law-abiding taxpayer and incentivise tax evasion. In addition to the proposal to tax evaders, the Finance Minister has also made several observations on how tax disputes may be resolved. Even granting that taxpayers may sometimes suffer harassment at the hands of tax officials, these proposals suggest a soft approach towards the litigant taxpayers, who are often quite powerful players.
Turning to the outlays in the Budget for 2016-17, the claim that the outlay for agriculture and farmers’ welfare, at Rs.35,984 crore, represents a quantum jump exceeding 100 per cent is not sustainable. The figure includes an allocation of Rs.15,000 crore towards interest subsidy on crop loans made last year as well, but shown then under a different head. The actual increase is more like 30 per cent or so in nominal terms, and is smaller in real terms when inflation is taken into account. Likewise, the allocation to the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) at Rs.38,500 crore, as against Rs.35,000 crore, represents a 10 per cent increase in nominal terms, but a part of this will be eaten up for paying the wage arrears in the scheme. The scheme provided only 38 days of employment per rural household last year. The allocation for the scheme peaked at Rs.40,000 crore in 2009-10, and in current prices, an equivalent allocation would have to be in excess of Rs.60,000 crore. The failure to increase allocation for the MGNREGS adequately is especially unfortunate given the severity of the crisis in agriculture and rural employment. Sadly, the story of stagnant or inadequate allocations is repeated in the social sector as well, with the apparent increases in health-related outlays being primarily towards provision of insurance and not towards public provisioning of health care, a strategy unlikely to improve health care for the poor. Particularly disappointing are cuts in outlays for the Integrated Child Development Services (ICDS) scheme, whose costing itself does grave injustice to the hundreds of thousands of anganwadi workers who are paid very poor wages.
In sum, the Union Budget for 2016-17 in its details is far from being pro-poor or growth-stimulating, notwithstanding a great deal of rhetoric to the contrary in the Budget speech. An opportunity, provided by low international oil prices and some decline in the rate of inflation, to boost the economy with well-directed pro-poor expenditures and a better effort at mobilising revenues from direct taxation has been missed. The government, it seems, prefers disinvestment to fair taxation as an instrument for resource mobilisation.