The veiled aspects of The Union Budget : "Naya Daur"....but is it an "Arda Satya" too ?

Both Naya Daur and Arda Satya were iconic movies of our generation which aptly summarises the Union Budget unveiled by Arun Jaitley.

At the outset it is a good, balanced budget given the difficult and uncertain environment globally and nationally. The thrust on pushing for a new India underpins the budget....the initiatives for a less cash, digital based economy, transparency in political funding, dismantling structures to speed up foreign investments whilst retaining a tight focus on the fiscal deficit is the "Naya Daur" aspect of the budget. Such resolve, political leadership and consistency of purpose has not been seen in recent memory in terms of dismantling the status quo.This has once again demonstrated what political will and leadership is all about.... and what it is capable of achieving even in a highly polarised, functioning democracy like India despite its many contradictions which are offered as excuses by lesser mortals for retaining the status quo.

People and companies hit adversely by this move would do well to re-calibrate themselves to the new reality of the revamped financial order in India....more transparency, cashless economy and substantially less black money. This is easier said than done given our political set up and collective mindsets. I am hopeful of its success on three counts : a determined cum visionary leader in PM Modi, a huge digitally savvy younger generation and the adaptability of Indians in general. The experience when we transitioned from a highly manipulative, opaque outcry, paper based system in financial markets to a fully electronic based transparent system in the mid nineties led by demat of securities by NSDL, real time electronic trading platforms by NSE and T+1 settlement is still fresh in the memories of many from my generation. It allowed India to leapfrog to better the global standards in financial market operations, and attract huge global capital and credibility, despite similar resistance from entrenched interests from across the political spectrum and lobbies.

The "Arda Satya" part of the budget though is equally relevant. For funding the large infrastructure, including railways modernisation, projects the budget has relied not on excessive market borrowings but increased tax collection. This is a combination of both widening the tax net led by unexplained demonetisation related deposits as well as better tax administration. Similarly, the political funding reform depends solely on the taxman implementing the intent of the law and prosecuting the political parties for violation of the Rs. 2000 limit for cash donations. Is this feasible ? The revenue service have been progressively empowered over the last few years and have shown results by increased tax collections in FY 16 and FY 17. But the fine balance between tax terrorism and firm, transparent administration will have to be carefully managed. This is more so since the SME sector, constituting 96% of all registered companies, are expected to drive economic activity due to the tax breaks provided. Such businesses do not have the voice of say a Vodafone to fight the tax officer's arm twisting tactics. The tax disputes since 2014 still stagnates at the levels when the NDA came to power. The general divide between the policy makers and those who implement them on the ground is a unresolved reality of our tax administration system where,unlike the US, we have the same set of officials at the field, policy and dispute resolution level.

Secondly, for bridging the financing gap initiatives such as the NIIF, announced in the 2015 budget with allocations of Rs 20000 cr, have yet to see any traction whatsover. Thirdly, creation of white collared jobs for the 60 Lakhs to 1 million students enrolled in colleges is practically non existent in the budget. Whilst the SME sector could create some employment, it would not be enough to take up the slack of big employers like the IT sector reeling under the twin pressures of rising protectionism in the US and digital disruption due to rapid automation. Affordable housing and infrastructure would surely create jobs but the majority may not be in line with the aspirations of the educated youth. The famed demographic dividend is at risk....various agitations like the Jallikattu in Tamil Nadu, the Gujjar in Rajasthan, the Jat in Haryana and the Patel in Gujarat are a direct consequence of lack of jobs. The holy grail of labor and land reforms thus requires to be decisively handled as soon as possible. Over dependence on the SME sector and the infrastructure sector without adequate financing is part of the Arda Sayta syndrome in the budget.

PM Modi has been a disruptor of various entrenched structures affecting fundamentally the way we have been functioning as a polity. I wish him luck to take up the political baton where Jaitely has left off to continue a fundamental reorientation of the nation's governance and economy.

This appeared in The QUINT dated Feb 03, 2017 as an Op-Ed article under Opinion > Article

(PRABAL BASU ROY)

Prabal Basu Roy is a Sloan Fellow from the London Business School and a Chartered Accountant: the writer presently manages a PE fund and has formerly been a Director and Group CFO in various companies.

Join me on Twitter.com @PrabalBasuRoy