The Union budget is an annual economic vision document of the government preceded by an economic report card, the Economic Survey, of the current fiscal year; yet it is looked to as a seminal policy moment.
Once the goods and services tax (GST) is in place and the annual ritual of tweaks to indirect tax rates consigned to history presumably, the excitement would abate and we will be able to look at the budget more objectively, especially since it is increasingly beginning to reflect the politics of the incumbent.
While we will have to wait for Jaitley to reveal the exact contours of the budget, here is a cheat-sheet to the budget.
The first thing to see is if the budget delivers on the fiscal promise the finance minister made last year.
Only if he has followed the counsel of the expert committee on new fiscal rules headed by former revenue secretary N.K. Singh (which has just submitted its recommendations) can the finance minister be excused for any deviation; this government has worked very hard and has been lucky to have some unexpected gains such as the steep fall in global oil prices to regain its fiscal poise, and it would be a shame to let it go.
Not only would it send the wrong kind of reform signals to the hawkish international rating agencies, it will also risk reviving the inflationary pressures, which have only just receded.
Secondly, it will have to be seen as to what the finance minister does to revive growth; it is the best cushion to deal with global economic uncertainties.
Ideally, he needs to revive private investment, which continues to be in a funk—as public investment seems to be operating at its limits. This is closely linked with how the government and the Reserve Bank of India, or RBI, can untangle the bad loans problem; at the moment, due to the pressure of bad loans, banks are unwilling to lend. So, will the Union budget provide a new impetus?
He can also, however, look at the consumption route to revive growth, now that the threat of inflation has receded.
So will the finance minister tweak direct tax rates/slabs to reward the taxpayers? This is something the middle class will follow closely.
Thirdly, it will be interesting to see how the finance minister tackles the trade-off between empowerment and entitlement that this government initiated after it took charge in 2014.
For the middle and the aspirational classes, it has pursued empowerment through a sustained effort in improving the plumbing of the administrative system, reducing government intermediation, targeting black money and stepping up anti-corruption efforts.
When it comes to entitlement, it has, unlike its predecessor, begun restricting it to only the deserving, ending the freebie era.
A good example being the cooking gas subsidy: not only did it weed out those who can afford it, the government has now started focusing on new connections for those living below the poverty line.
Similarly, in rural India it has, despite being a trenchant critic, pumped up spending under the rural employment programme to a record high of Rs58,000 crore this year.
Will the finance minister take this to the next level and accept the recommendations of another expert panel to create a social registry, which will enable to not only direct subsidized/development spending but also ensure real time monitoring?
Fourthly, will this budget incentivize growth which is jobs friendly? For over a decade and more now, India has seen only jobless growth: while it adds 12 million to the labour force every year, the economy is able to absorb less than one million. A course correction is long overdue.
While the budget can’t be the magic wand, it can definitely create the circumstances by sending the right message to various government departments to hit the reset button; at the moment, most of them are still beset by the ‘licence raj’ syndrome. Today’s India is on the cusp of an entrepreneurial-led boom; their only mantra for success is less bureaucracy in their lives.
Finally, all eyes will be on the tax reforms package Jaitley will announce, the centrepiece of which is indeed the GST (and due credit should be accorded to Jaitley for shepherding the group of state finance ministers and being so generous with concessions to generate consensus).