After the chaos unleashed by last year’s demonetisation decision, India’s finance minister has promised relief, resuscitation, and reform in the coming months.
On Feb. 01, Arun Jaitley presented his budget for 2017-18 to the parliament, promising bumped up funding for the hard-hit agriculture and rural sectors, as well as tax cuts to soothe struggling small enterprises and the middle class. But not everyone is convinced that it’s full steam ahead for the Indian economy.
As per tradition, Quartz invited graduate students from the Indian Institute of Management, Ahmedabad (IIM-A), the Indian School of Business (ISB) in Hyderabad and Mohali, and New Delhi’s Jawaharlal Nehru University (JNU) to go through the full text of Jaitley’s speech. Their annotations reveal just what some of the smartest young minds in India think about the finance minister’s big plans for the country.
Responses have been edited for grammar and clarity.
Farmers and agriculture
In his 2017 budget speech, the finance minister announced a slew of measures to boost the agrarian economy. These range from increased agriculture credit for the fiscal year to extended support to NABARD, or the National Bank for Agriculture and Rural development. Students, however, weighed the announcements against the backdrop of a stressed rural economy.
“I don’t see any improvement in the budget for farmers in comparison to last year. The Rs10 lakh crore credit is almost equal to last year’s figure… And there is no clarification or statement about other aspects. Why farmers are not getting a good price? Why farmers had to throw tomatoes on the road after demonetisation? Why the number of farmers suicide is rising year after year? I don’t see this budget allocation for farmers addressing the agrarian crisis.” - Manish Kumar (JNU)
The minister also called for an upgrade of systems at NABARD to ensure the smooth flow of credit to farmers.
“We will support NABARD for computerisation and integration of all 63,000 functional PACS with the core banking system of district central cooperative banks. This will be done in 3 years at an estimated cost of Rs1,900 crores…”
“A big issue with these programs is the level of awareness farmers have about them. Unless the government aggressively educates farmers about the benefits available to them, allocating extra money may not help. In such programs, quality of implementation is more vital.” - Gourav Beriwal (IIM-A)
“A Dairy Processing and Infrastructure Development fund would be set up in NABARD with a corpus of Rs8,000 crores over 3 years. Initially, the fund will start with a corpus of Rs2,000 crores.”
“Market-based economics already work well for the dairy industry with over Rs15,000 crores estimated to be invested in the sector in the next couple of years. A better utilisation would be to provide cheaper livestock loans through MFIs (microfinance institutions) to make it easy for farmers to own livestock.”- Puneet Rustagi (ISB)
“Issuance of Soil Health Cards has gathered momentum. The real benefit to farmers would be available only when the soil samples are tested quickly and nutrient level of the soil is known. Government will therefore set up new mini labs in Krishi Vigyan Kendras (KVKs) and ensure 100% coverage of all 648 KVKs in the country. In addition, 1000 mini labs will be set up by qualified local entrepreneurs. Government will provide credit linked subsidy to these entrepreneurs.”
“There is absolutely no premise to believe that 1000 qualified local entrepreneurs will come available in order to execute this mission. The government is already out of capacity to provide soil health cards to the 140 million recipients. The idea is too float a fast paced system, riding on a system already plagues with inefficiencies is a shot in the dark.” Rohan Dev Talwar (ISB)
In its budget, the government significantly hiked the allocation of funds towards the MGNREGA rural jobs scheme, taking it to a record high. However, students remained critical of the move, stating that the increased allocation of funds is not commensurate with rising inflation.
“Honourable members would be happy to note that the budget provision of Rs38,500 crores under MGNREGA in 2016-17 has been increased to Rs48,000 crores in 2017-18.”
“Dear Mr. FM, there is something called the real value of money. These are just nominal numbers. With dal priced at Rs200 per kg, these numbers don’t amount to too much. And besides, with wage rate delays and non-payment of wages, these are just numbers for workers working under MGNREGA. The increase in funding for MGNREGA is not commensurate with the inflation rate in the country.”- Altaf Malik (JNU)
“It is pretty ironical that the incumbent party is increasing allocation in this scheme after proclaiming MGNREGA to be a memorial of the previous government’s mistakes. Leaving politics aside, the increased allocation should reach the beneficiaries transparently after the Jan Dhan Yojana. No middle men!” - Tanuj Arun Govil (ISB)
“This is a false claim, as the revised estimates for 2016-17 was Rs47,500 crore so in real terms there was a decrease in expenditure accounting for inflation.” – Sriharsha Vavilala (IIM-A)
“We propose to establish a National Testing Agency as an autonomous and self-sustained premier testing organisation to conduct all entrance examinations for higher education institutions. This would free CBSE, AICTE and other premier institutions from these administrative responsibilities so that they can focus more on academics.”
“This will be effective iff it works in sync with the existing framework. For eg. IITs wouldn’t want someone else to design entrance paper for them. NTA should be responsible only for conducting exams in the most efficient manner.” – Arpit Jain (IIM-A)
“This doesn’t help since it is likely to create a wider divide between outcomes (testing) and objectives (learning and curricula).” – Puneet Rustagi (ISB)
“We are well on our way to achieving 100% village electrification by 1st May 2018. An increased allocation of Rs4,814 crores has been proposed under the Deendayal Upadhyaya Gram Jyoti Yojana in 2017-18.”
“There is a difference between households and villages and that is something the government should focus on for this to be of merit. As per the governments’ definition, a village is deemed ‘electrified’ if basic infrastructure, such as a distribution transformer and distribution lines, has been set up in the inhabited locality, which seems like an incomplete measure of electrification. The households might still not get the benefits of electrification.” – Achyut Mohan Sharma (ISB)
“The electrification scenario is crucial, especially in light of many of the stated objectives in the budget. However, electrification does not lend itself to a reliable access to electricity. Indeed, the definition of electrification (http://www.ddugjy.in) itself is silent on reliability and continuous access. Many studies have shown that the state of actual reliable access of electricity in many areas is much lower than what has been claimed in government reports.” – Nazar Khalid (JNU)
“India’s tax to GDP ratio is very low, and the proportion of direct tax to indirect tax is not optimal from the view point of social justice.”
“The tax non-compliance seems far more than expected by anyone. Superb way of estimating the non-compliance scale. Finally, the policy-makers are leveraging data. Great to see it.” - Arpit Jain (IIM-A)
“FM rightly points out “We are largely a tax non-compliant society.” However, the changes announced by the FM do not seem to help to increase the direct tax collection and its coverage.” – Manish Kumar (JNU)
“Madam Speaker, one of the main priorities of our Government is to eliminate the black money component from the economy. We are committed to make our taxation rates more reasonable, our tax administration more fair and expand the tax base in the country. This approach will change the colour of money.”
“The government’s intentions are noble. However, it needs to take into account that there is a difference between black money and the black economy that is creating it. A crackdown on that economy is also essential, as a lot of the black money is tied up in the economy and is tied up in various non-cash assets.” – Achyut Mohan Sharma (ISB)
“For several decades, tax evasion for many has become a way of life. This compromises the larger public interest and creates unjust enrichment in favour of the tax evader, to the detriment of the poor and deprived. This has bred a parallel economy which is unacceptable for an inclusive society. Demonetisation seeks to create a new ‘normal’ wherein the GDP would be bigger, cleaner and real. This exercise is part of our government’s resolve to eliminate corruption, black money, counterfeit currency and terror funding.”
“Black money is a stock concept while illegal activities (which generate black money) are a flow concept. What the government has done through demonetisation is that it has targeted (the) stock variable, leaving the flow variable as it is. Illegal business activities (a flow variable) will continue to generate black money. Thereby, the problem of black money and the parallel economy remains as it is.” – Altaf Malik (JNU)
“Drop in economic activity, if any, on account of the currency squeeze during the remonetisation period is expected to have only a transient impact on the economy. I am reminded here of what the father of the nation, Mahatma Gandhi, had said: ‘A right cause never fails’.”
“A bad policy is no substitute for a good intention/right cause. We are still to see a rigorously worked out analysis that establishes the transient nature of the demonitisation policy as such. We are left wanting on that front.” – Nazar Khalid (JNU)
“The Special Investigation Team (SIT) set up by the government for black money has suggested that no transaction above Rs3 lakh should be permitted in cash. The government has decided to accept this proposal. Suitable amendment to the Income Tax Act is proposed in the finance bill for enforcing this decision.”
“The government’s demonetisation ploy would have been incomplete, if not for supplementary support from the budget. The thrust on digital payments augments the switch to a cashless economy, and is a step in the right direction.” – Shrey Jain (IIM-A)
“A bold move. However, the implementation is key. A person who does not receive or generate a bill for services is generating black money, and the amount of that goes unrecorded whether Rs5 or Rs5 lakh…Therefore, a more prudent mechanism for a crackdown is required.” – Achyut Mohan Sharma (ISB)
“In the next 3 years, the throughput is proposed to be enhanced by 10%. This will be done through modernisation and upgradation of identified corridors. Railway lines of 3,500 kms will be commissioned in 2017-18, as against 2,800 kms in 2016-17. Steps will be taken to launch dedicated trains for tourism and pilgrimage.”
“Simple refurbishment of the railway lines might not be the ideal solution for the Indian economy moving forward. To have high-speed trains/bullet trains, infrastructure needs to be built from scratch. The operational speed of our existing infrastructure is around 160 kmph. However, for the needs of the India of tomorrow, this needs to be greater than 250 kmph. This requires a completely different approach to railway networks.” - Achyut Mohan Sharma (ISB)
“For passenger safety, a Rashtriya Rail Sanraksha Kosh will be created with a corpus of Rs1 lakh crores over a period of 5 years. Besides seed capital from the government, the railways will arrange the balance resources from their own revenues and other sources. Government will lay down clear cut guidelines and timeline for implementing various safety works to be funded from this Kosh.”
“This will remain as just one among many other funds which are previously declared by government and lying under-utilised. In my opinion, there should be strong willpower from the government, supported with required technological development, to address this issue. There should be a permanent committee under railways to look after safety-related issues and have some powers to implement its recommendations.” - Pradeep Kumar SS (IIM-A)
“In accordance with the suggestion made by the Election Commission, the maximum amount of cash donation that a political party can receive will be Rs2,000 from one person. Political parties will be entitled to receive donations by cheque or digital mode from their donors.”
“A right initiative to increase transparency. Political parties must also put the details of donors on the website.” - Anshul Yadav (JNU)
“This seems like half a step. For all established parties, the government should mandate non-cash transactions only. The established party could be defined as one greater than two years of age. Any major party is unlikely to go for cash transactions if it wants transparency. Newer parties (less than two years), for want of large base, might need cash transactions.” - Achyut Mohan Sharma (ISB)
“Jaitley has hit two targets with this one arrow. Keeping up with the government’s push towards a cash-less economy, he has not provided leeway to political parties. Also, he goes on to build the opinion that there is little chance of under-the-table sponsorship for the campaign of the BJP.” - Shreya Sodhani (IIM-A)
“The FM hits the bull’s eye here, whereby he is able to clear the discontent people have with the government being soft towards political parties.” – Shrey Jain (IIM-A)
Personal income tax
“I, therefore, propose to reduce the existing rate of taxation for individual assesses between income of Rs2.5 lakhs to Rs5 lakhs to 5% from the present rate of 10%.”
“As mentioned earlier in the budget proposal that we are a highly tax non-compliant nation, this move is less likely to adversely affect the government coffers. At the same time, reduction in tax payment will boost spending among the middle class, resulting in an increased contribution to GDP.” - Mouli Malakar (ISB)
“In my opinion, negative tax elasticity would kick in and increase the tax revenue even after a decrease in the tax rate. This would be attributed to the financial inclusion of those who, earlier, did not prefer to come within the tax net.” - Udit Ahuja (IIM-A)
“A more progressive tax framework for income tax seems appropriate now given that the GST is a regressive tax framework. This should compensate for the change and overall raise tax revenues. The burden on the poor should also reduce.” - Nayana Jain (IIM-A)
“In order to make good some of this revenue loss on account of this relief, I propose to levy a surcharge of 10% of tax payable on categories of individuals whose annual taxable income is between Rs50 lakhs and Rs1 crore.”
“A brilliant step indeed to cushion some of the foregone tax amount for the reduced tax rates for lower incomes. This could have been made better by having higher tax rates aimed at the super-rich with incomes beyond Rs10 crore.” – Achyut Mohan Sharma (ISB)
“There has been substantial progress towards ushering in GST, by far the biggest tax reform since independence. Since the enactment of the Constitution (One Hundred and First Amendment) Act, 2016, the preparatory work for this path-breaking reform has been a top priority for the government. In this context, several teams of officers both from the states and Central Board of Excise and Customs have been working tirelessly to give finishing touch to the Model GST law and rules and other details.”
“The Economic Survey tabled GST as one of the major domestic policy developments, and its impact is likely to be pervasive. Given the enormity of this animal, Jaitley failed to give clarity on how GST will play on the budget from the perspective of revenue collection, and, more importantly, from the perspective of the cost of implementation.” - Shrey Jain (IIM-A)
“The focus on resolution of stressed legacy accounts of Banks continues. The legal framework has been strengthened to facilitate resolution, through the enactment of the Insolvency and Bankruptcy Code and the amendments to the SARFAESI and Debt Recovery Tribunal Acts. In line with the ‘Indradhanush’ roadmap, I have provided Rs10,000 crores for recapitalisation of Banks in 2017-18. Additional allocation will be provided, as may be required.”
“Jaitley’s initiatives to revitalise the banking sector are meek, to say the least. Recapitalisation of banks is inadequate on two counts. The write-offs for all public sector banks (PSBs) put together stood at Rs59,500 crores for FY16, and a similar number is expected for the next two years. The numbers don’t stack up when we add the profits of all PSBs put together (which totalled up to Rs3500 crores for H1FY17), and the FM’s allocation of Rs10,000 crores. Add to that, Rs22,000 crores required to beef up capital requirements by FY18 as per Basel 3 norms, and one can safely assume that capital inadequacy will trouble the FM sooner than later.” - Shrey Jain (IIM-A)
“Raghuram Rajan had identified that a major cause for bank NPAs is the high credit period most vendors experience. In India it is standard practice for companies to pay their vendors after 60 to 90 days. Even if their credit period is for 15 days, the money sometimes comes in after 3 months. Standard practice is to classify any debt that is late by 60 days as non-performing. Hence, many vendors declare bankruptcy simply because they didn’t have the working capital to manage these delays. A large part of the NPA problem can be solved by reducing the credit period faced by the vendors.” - Gourav Beriwal (IIM-A)
“Madam Speaker, my direct tax proposals for exemptions, etc. would result in revenue loss of Rs22,700 crore but after counting for revenue gain of Rs2,700 crore for additional resource mobilisation proposal, the net revenue loss in direct tax would come to Rs20,000 crore. There is no significant loss or gain in my indirect tax proposals.”
“The fiscal deficit target of 3.2%, compared to the current 3.6%, even after an estimated net revenue loss of Rs20,000 crore in direct taxes alone might be slightly ambitious.” – Udit Ahuja (IIM-A)
“Some clarity on how Jaitley is planning to make up for these losses would have helped the overall math. Till last year, he used to mention overall direct and indirect tax revenues expectations and how they match with expenditure estimates, thereby justifying the revenue and fiscal deficit targets. The total expenditure has increased, but revenues have dropped and fiscal deficit has decreased. Amidst this uncertainty, the fiscal deficit target is bound to suffer, unless Mr.FM has an ace up his sleeves. The GST and post demonetisation better expand the tax base to meet the revenue deficit targets.” – Arpit Jain (IIM-A)
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