I was full of trepidation because of the huge expectations from the Budget. This was clearly a make or break Budget for the Modi Government as it would have lost the benefit of the doubt, which it has enjoyed until now.
Moreover, the fear was that with the electoral outcome in Delhi, the Government could get scared and veer away from the path of reforms.
It is indeed to the credit of the Government that they have proven our fears to be unfounded. The Budget is replete with forward looking and reformist measures, whose cumulative positive impact will be significant in the coming years.
For me the five most important features of the Budget are: First, its emphasis on infrastructure investment by increasing budgetary allocation by a whopping Rs 70,000 crore.
This is buttressed by allocating Rs 20,000 crore as seed capital for the National Investment and Infrastructure Fund and the issuing of tax free infrastructure bonds for rail, road and irrigation.
This infrastructure focus was necessary for promoting the ‘Make In India’ program.
Second, initiating measures against the generation of black money and the related menace of widespread use of cash in our economy.
These include incentives for using credit/debit cards combined with disincentives for cash transactions; stricter provisions and penalties against the use of cash in the construction industry, which is notorious for it; and the proposed stringent law against black money specially for wealth stashed abroad.
The provisions for a ten year rigorous imprisonment, making the offence non-compoundable; denial of access to the Settlement Commission; and a penalty of 300 per cent will be a huge deterrent and surely minimise the outflow of funds abroad.
Third, the Budget’s focus on improving the business environment especially for the micro, small and medium enterprises (MSME) is laudable.
This includes the setting up of the MUDRA bank, with seed capital of Rs 20,000 crore and a Rs 3,000 crore credit guarantee corpus for improving access to formal financing for the 57 million MSMEs. In addition the Finance Minister announced the launching of an e-biz portal which integrates 14 regulatory permissions at one source.
Further, an Expert Committee is being set up to suggest a draft legislation for replacing multiple prior permissions with a pre-existing regulatory mechanism. This will greatly reduce the procedural delays and regulatory complexities whose burden fell disproportionately on the MSMEs. Fourth, the Finance Minister has shown that he is not beholden to any fiscal dogma and has his attention focused sharply on the need to raise investment.
He has demonstrated this by opting for a more moderate glide path for meeting the medium term fiscal deficit goal of 3 per cent of GDP. This will now be achieved over three instead of two years as earlier targeted. Accordingly the fiscal deficit next year will be pegged at 3.9 per cent, giving the Government greater fiscal space to make the much needed investments in infrastructure and agriculture. Fifth, the Finance Minister accepted my suggestion to give the workers in smaller organisations the option to move out of the EPFO to New Pension schemes and to choose medical insurance in place of compulsorily registering under the ESI. The importance of these reforms is in formalising the informal sector and slowing down the expansion of contract labour in Indian industry.
This is the first important step in eliminating the unacceptable dualism that currently characterises Indian industry. The Budget has also given 1st April 2016 as the fixed date for the inception of the Goods and Service Tax. It has raised service tax to 14 per cent in an attempt to bring it line with the likely GST rate.