Vol. XLI No. 06 February 05, 2017
Array

Budget 2017-18 Imposes Further Burdens on the People

The Polit Bureau of the Communist Party of India (Marxist) has issued the following statement on February 1, 2016.

AT a time when the common people of India are reeling under the disastrous impacts of demonetisation, the finance minister has come out with a contractionary budget which is likely to greatly exacerbate suffering of the working people. The Economic Survey presented yesterday clearly shows a deceleration in economic growth, a sharp fall in demand for goods and services, massive job losses, decline in farm incomes, and social disruption in cash-intensive sectors. Demonetisation has resulted in large unutilised industrial capacity, with core industries like automobiles, cement, steel, paper, aluminium and fertilisers having been hardest hit, and massive unemployment. It is a travesty that, in such a situation, and despite having 40 million tonnes of public foodstocks, and a comfortable current account deficit and foreign exchange situation, the government wants to pursue contractionary fiscal policies.

The total size of the budget has come down from 13.4 percent of GDP last year (revised estimate) to 12.7 percent of GDP this year. The fiscal deficit target has been achieved through expenditure reduction. The total revenue receipts have come down from 9.4 percent of GDP in 2016-17 Revised Estimate (RE) to 9 percent of GDP in Budget Estimate (BE) of 2017-18. Taxes forgone due to budgetary measures have gone up by about Rs 30 thousand crores and are put at 2.1 percent of GDP.

The burden on the working people has been increased with the government expecting an additional revenue of 75 thousand crores through indirect taxes, far more than the Rs 20 thousand crores relief to small income tax
payees given in this budget. Once again this year, excessive reliance for increasing revenue receipts is on higher excise duty on petroleum products.

The government is relying on an increase in direct tax collection by 1.3 lakh crores. This may not actually be realised as it is based on the assumption of an unrealistically high economic growth, ignoring the uncertainty of the effect of GST on tax mobilisation, and assuming that demonetisation would work as a magic pill and induce greater tax compliance.

The finance minister appears to be addressing the recession by creating a housing bubble. The inclusion of affordable housing in the definition of infrastructure will make it exempt from stringent provisions of land acquisition, extend priority sector lending at subsidised rates to provide cheap land and credit to builders, and include larger houses under the affordable housing are all aimed in that direction. The reduction in capital gains liability by bringing the base year forward to 2001 (from 1981) is aimed at giving windfall gains to real estate speculators and builders.

The proposal to reduce income tax for MSMEs with an annual turnover of under Rs 50 crores ignores the interconnected-ness of the Indian corporate sector, and opens up a new avenue for corporate tax evasion.

The finance minister repeatedly talked about demonetisation having provided banks with funds for increased lending. Forced saving of working people in short-term deposits can hardly be used for lending as poor depositors are likely to withdraw a large part of it for consumption as soon as restrictions on cash withdrawals are lifted.

As per the budget, only 1.48 percent of total budgetary outlay is allocated for welfare of scheduled tribes and 2.44 percent for the welfare of scheduled castes. This is way below the share of scheduled tribes and castes in the total population. Similarly, the amount classified under gender budget is only 5.3 percent of total budgetary outlay.

MGNREGA is one of the largest poverty alleviation programme of the government. Despite the deflationary conditions, and in contrast with loud claims made by the FM in his speech, the numbers in the budget document show that there is no substantial increase in allocation for MGNREGA (48 thousand crores) over what is estimated to have been spent last year (47.4 thousand crores).

There is only a small increase in social sector expenses which, given inflation, would be barely sufficient to meet even the increase in salary expenditure due to the 7th Pay Commission. While there is a small increase in the share of total budgetary outlay going to health, the share going to school education and literacy has actually declined (2.2 percent in 2016-17, RE to 2.16 percent in 2017-18, BE).

The finance minister repeatedly talked about doubling incomes of farmers. This does not reflect in any increase in outlays for agriculture. The allocation for department of agriculture, cooperation and farmers' welfare has fallen from 1.98 percent of total expenditure in 2016-17 (RE) to 1.95 percent of total budgetary outlay in 2017-18. There is no increase even in the major flagship programmes of the government, and the government seems to be relying only on the banking system for achieving this.

Although the finance minister talked of a focus on infrastructure, the capital expenditure of the government has fallen from 1.86 percent of GDP (2016-17, RE) to 1.84 percent of GDP (2017-18, BE).

The finance minister made several announcements regarding political funding, ostensibly to increase transparency and accountability. The limit of Rs 2000 on cash donations to political parties is meaningless as such transfers are mostly unreported. In the absence of a ban on corporate funding of political parties and overall limit on election expenditure of political parties, the so-called reform of electoral funding is nothing but a hogwash.

To sum up, this budget not only ignores but also imposes further burdens on the people in the wake of demonetisation and widespread deflationary conditions.