With Narendra Modi led BJP government coming to power with absolute majority in the 2014 General Elections, the expectations from its maiden full budget were naturally quite high– be it from the perspective of industry or the common man. The budget was presented amidst positive sentiments and factorable macro environment which was aided by lowering inflation and substantial drop in crude oil prices.
While some positive steps were taken over last 9 months, few concrete steps were visible on the ground. This budget was expected to set a tone, and to an extent, it delivers a solid punch in that direction, at least in intent. It has laid down a solid foundation for India Inc. to now push ahead the growth engine to ensure that “Make in India” is just not another idea by government that got nipped in the bud.
Did budget meet expectations?
Prima facie the budget appears to be a balanced one, with equitable focus on social sector as well as on growth. It is clearly directional, with a long term outlook and most importantly spells out the vision of the Modi Government. This budget can be also looked at as an aggregation of important big ticket ideas, one of them being moving towards the implementation of GST in the next financial year. It has been forthright in its approach and marks a paradigm shift in terms of policy to focus on job creation rather than freebies, which is a welcome change.
The Finance Minister manages to spell out priorities of the government viz. Make in India, Swacch Bharat campaign, enhanced push for infrastructure growth & manufacturing, increasing ease of doing business through single window clearance, tax benefits for expenses towards building of toilets, etc.
While the government has its own challenge of meeting its fiscal deficit, the real impetus of growth will be in the Government’s outflow of funds vis-a-vis allocation especially towards the long pending and much needed infrastructure projects. However, strong opposition to Land Acquisition by certain quarters may prove to be a dampener.
One of the clearly distinct approaches from all previous governments seem to have a genuine effort to make poorest of poor self dependent rather than keeping them terminally ill. It talks about strengthening agriculture, which still employs a major chunk of Indian population. There also seems to a conscious effort for a behavioural drive among citizens to save more rather than mere consumption. Direct subsidy transfer though banking mobile platforms to ensure transparent end use of funds or abolition of Wealth Tax to simplify tax regime are also important steps.
However in India, budget is seldom pure economics and is often balanced out with politics and hence one could observe additional funds being allocated to MNREGA despite the new dispensation’s clear reservations about the scheme itself!
How can budget impact SMEs?
At the very heart of "Job Creation" and "Make in India" lies the SME sector, which has been the largest contributor (providing jobs to nearly 60 million people) and also probably has the biggest potential to create entrepreneurs. Hence it was heartening to see set up of Micro Units Development Refinance Agency (MUDRA) Bank for the SME sector. This will definitely enhance the credit facility for growth of small businesses, particularly manufacturing. Further fund allocation of Rs.10,000 Cr for start ups can be a great booster to attract Private Equity and soft loans while District Level Incubation and Accelerator Program to develop capacity for skill-set among the SME Segment.
Reduction of Corporate Tax rate by 500 basis points over next few years, coupled with reduction in excise duty on certain import will help the entire industry including SME to be more competitive.
The larger picture
If one has to look at the bigger picture, one can drive comfort from the fact that this has been a very decisive budget in terms of direction – clearly there is a roadmap given for transforming India to have a greater share of manufacturing in the GDP pie of this predominantly agrarian economy. There has been a genuine attempt to boost the economic growth as well as reach out to the weaker sections of the society.
One may debate whether the budget does enough to meet its social and economic obligations completely or could have done with some more big bang reforms given its complete majority. I believe that it’s an evolving process and in that sense, it is the right step at the right time in the right direction.
