Looking for "good" news in the Budget 2018

The Economic Survey is out and India awaits the Budget 2018 tomorrow; for those in the business of searching "good" news and those for "bad" news have a field day.

The Survey has touched on all the aspects bordering the issues that are debated every day with loads of data. In fact there is too much data and too much analysis but the most simple question is yet to be raised.

In a time when all the surplus of the world is chasing one single class of asset, which is equity, India should have been the only country where this should not have been the case. When the financial crisis struck in the rest of the world, the impact on the Indian economy and growth was minimal. How did we collectively get to this point that when the rest of the world economy has recovered so much, our core sector has moved the other way?

Whatever we see in the Economic Survey, the crucial point is that we had an extended period of low oil prices which was the major tailwind to the economy of India that allowed an extended period of low inflationary pressures on the economy. The elimination of subsidies could fructify also in this environment. But this has changed dramatically now with year on year increases in oil prices. The budget cannot ignore this point and get it wrong.

Absence of public and private investments and the struggling banking sector with high NPAs surely would need urgent attention. But all this will be dwarfed by the urge to resonate with the larger masses of India who matter much more when the last budget of the government is written.

But even that would need attention in execution of the programs already announced in the social sectors in the last two budgets. The developmental areas include Social and Community services, general economic services, Agriculture and allied services, Fertilizer subsidy, Power and Irrigation, Transportation, Public Works, Grants to states.

Every time it is a tight rope to see how these allocations play against the other. I have rarely seen the allocations changing drastically, but the last budget had put emphasis on the agriculture and allied services, general economic services and on transportation and housing, which has come under infrastructure. The affordable housing push came as a welcome step (completion of 1 Crore houses by 2019). Starting with announcements on Rural Sector expenditure adding up to Rs.3 Lakh Crores, MGNREGA, electrification completion of all villages, safe drinking water, Swatch Bharat, Skill India Mission, Mahila Shakti Kendra, Welfare of Women and Children, Efforts on Kalazar and TB, modification of labor laws, etc.

We need to see the progress made in these areas tomorrow.

The Union Budget brings us some fresh thoughts as every time, the expectant populace waits for sops to be announced and some get happy about it, while some are not.

The Budget, by the way, is a zero sum endeavor; it must balance revenues with expenditure. On the revenue side the government earns by taxes of all kinds, including on goods and services, while on the expenditure side there are two kinds, revenue kind and capital kind. If the government does not invest in the capital kind, the impact for the slightly longer term would be poor.

If the government must increase spending, which is a way to provide growth it must also collect more in taxes, which would be counter-productive to growth as people would have to postpone spending in order to pay more for goods or services or for paying income tax. So it is always a balancing act.

India has a biggest challenge for any government that the direct tax base is one of the poorest in the whole world with a very small number of people paying taxes. So the governments have no other way but to tax the goods and services, which currently is anything between 18% to 20% of the price of goods and services on the aggregate level. Imagine for developed nations, this would be as low as 6%, which only goes to show how spending by the common man is incentivized, which reduces the need for governments to spend to keep the GDP moving.

The budget paper from the purely economic point of view should be read as like any balance sheet, first we must see the revenue side of the statement and then what is the expenditure that the government is proposing. No budget can ever balance each other and especially for a growing economy where state capacity is yet to reach optimum levels.

The fiscal gap, known as the fiscal deficit is then funded by various means, some of which has long term implications for the populace in general.

The fiscal deficit as proposed in the 2017 budget was 3.2% of GDP, which is one item where the actual numbers would definitely be higher.

Incentives on public and private investments will be one crucial item that industry will be waiting to watch.