Indicating a strong preference for fiscal consolidation, Finance Minister Nirmala Sitharaman has outlined several schemes designed to address issues of unemployment, credit flow to the MSME sector and productivity in agriculture even as she proposed additional allocations for development projects for Andhra Pradesh and Bihar.
The fiscal deficit has been contained at 4.9 per cent against 5.1 per cent estimated in the interim budget even as customs duty on the import of gold, silver, mobile phones and printed circuit boards.
India’s “high” fiscal deficit has been an area of concern for international credit rating agencies and a glide path towards the widely accepted 3/3.5 per cent is expected to nudge them to award a higher rating to the country.
Among the tax proposals, the hike in the capital gains tax by a sharp 25 per cent spooked the stock markets initially though by close, the day’s losses were recouped. The budget size was restricted to Rs 48.20 lakh crore as against Rs 47.65 lakh crore of the interim budget despite a windfall dividend from RBI aggregating Rs 2.1 lakh crore. Conservatism was evidently on display as the government seemed keen on reaching the 4.5 per cent deficit mark as targeted.
The outlays on major schemes and the allocations for ministries remained more or less at the levels indicated in the interim budget except those for labour and employment, skill development & entrepreneurship and consumer affairs & public administration. While the budget speech contained many new schemes, the major difference from the interim budget was reflected in the gross borrowing coming down from Rs 16. 8 lakh crore to 16.1 lakh crore.
Three new schemes to support new hires by establishments covered by the Employment Provident Fund Organisation is expected to benefit nearly 3 crore youth. This should go some way to address concerns expressed about high unemployment as reported by economic think tanks like the CMIE. In May, the Centre for Monitoring Indian Economy estimated an unemployment rate of above 9 per cent while the government’s own estimate is only 3 per cent.
There was continuity in terms of the constituencies sought to be addressed by the initiatives — the poor (Garib), youth, women and farmers. Apart from hiking the outlay for agriculture and farmers' welfare from the level estimated in the interim budget, the slew of announcements for the MSME sector stood out in the FM’s speech. Contributing 50 per cent of India’s exports and employing more than 10 crore people, MSME units and associations have been vocal in demanding concessions and reliefs. Many of them have also been facing cash flow problems as receivables have got extended. Resultantly many units have been under stress.
Notable among the measures was a guarantee scheme intended to provide term loans up to Rs 100 crore for these units as also outlining of credit support to even units which have delayed repayments of bank loans (accounts which are under the Special Mention category). Also related to this sector is the doubling of the Mudra loan amount to Rs 20 lakh for borrowers who have promptly repaid their earlier loans.
The middle class had to be satisfied with an increase in the standard deduction amount from Rs 50,000 to Rs 75,000. For those in the top tax bracket adopting the new tax regime (without availing exemptions) the benefit would be Rs 17,500. The Government also has increased the tax-exempt status for family pension from Rs 15,000 to Rs 25,000.
Sitharaman highlighted the strong growth achieved by the Indian economy. “India’s inflation continues to be low, stable and moving towards the 4 per cent target. Core inflation (non-food, non-fuel) currently is 3.1 per cent. Steps are being taken to ensure supplies of perishable goods reach the market adequately”.
The much-touted outlay for infrastructure remained unchanged at Rs 11,11,111 crore. Continuing the collaborative thrust of keeping States in the loop, the FM stated that a provision of Rs 1.5 lakh crore for long-term interest-free loans has been made for supporting the States in their resource allocation for capital expenditure.
As she finished her crisp 90-minute address, the political take was centred on the promised special grants/transfers to Bihar and Andhra Pradesh while the NDA defended its ground based on the emphasis on welfare and jobs. The FM can take credit for highlighting key concern areas and making pragmatic allocations while walking the fiscal tightrope.
(S Adikesavan is a commentator on the economy and banking. Opinions expressed are personal)
