Friday, February 03, 2017


The Budget 2017-18 presented on February 1 is essentially an interim budget. GST will not be in place before July 1st. Impact of demonetisation is not yet clear. Unclear past and uncertain future have made the budget more unrealistic than usual. Under these trying circumstances, the Finance Minister has done his best. One should pity the FM. It is like blindfolding a person, keeping him in an unknown place and asking him which direction he wants to take.

India is suffering from three critical deficits: jobs, ethical behaviour and innovation. The budget seeks to enable creation of more jobs through greater spending on infrastructure and giving tax concessions to MSMEs which are the major fountain of jobs. It is unrealistic to expect the FM declare how many jobs will be created in the process. Number of new jobs will depend on where we are in the continuum between jobless growth and job-oriented growth.

Black money partially reflects our low regard for ethical behaviour. In the absence of immediate and stringent punishment for unethical behaviour, tax-compliance is unlikely to improve even if tax rates are brought down substantially. Allowing Vijay Mallya to emigrate and disallowing charge-sheeting of Marans are indicative of our tolerance for unethical behaviour. Government may plead its helplessness since there was no look-out notice for Mallya and the special CBI judge may blame the ineptness of prosecutors, but the fact remains that decriminalisation of our society is not in our priority list.

Encouragement of innovation like R & D has not attracted FM's myopic attention. Growth can be sustained only through incentivised innovation.

Economic twin-deficits of Fiscal Deficit and Current Account Deficit are fairly under control. They may go for a toss in case oil prices head north. FRBM Act originally contemplated bringing the Revenue Deficit to zero. It is unlikely to happen any time soon. This means the government is borrowing funds to pay salaries and interest on loans. Revenue Deficit reflects only recklessness past and present.

Government is likely to present another budget while introducing GST. That will test FM's acumen much more.

One of the TV channels interviewed Jim O'Neill, the creator of acronym BRIC, around 1 p.m. (IST) on the budget day, that is around 7-30 a.m. in London where he was. He might have just then woken up. Asked for his impressions about the budget, he said "nothing spectacular about it . Nothing very bad either." I suppose that applies to any budget.

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