Politics of Budget

By Asit Manohar

As expected, Indian government has tried to take advantage of budget 2017 in coming five state assembly polls by making it strictly for Bharat leaving key reform at bay

In a bid to bring in transparency in all kinds of transactions including political funding and passing on its benefits to the common man, the finance minister of India presented the Budget 2017-18 on the floor of the Lok Sabha. This budget is historic as it was the first time when the Rail Budget was clubbed with the general budget. While presenting this budget, the central government had to abandon the common practice of suspending the parliamentary session if a sitting member of the parliament passes away. Coming back to budget, it was on the expected lines; however, it must be disappointing for the banking sector as it was expecting a bailout package for recalibration. The sector needs `1.1 lakh crore bailout package by 2019 to come out of the NPA cloud while the allocate fund for the purpose in budget 2017 was only `10,000 crore. There was major thrust on the digital transaction by allowing various sops for e-transaction or via aadhar linked transaction even when the user doesn’t have plastic money. Realizing internet penetration as major constraint in meeting this target, this budget had an aim to enhance internet penetration along with access to Smartphone that are required increasing the e-transaction in India. However, the budget also keeps its eye on containing the fiscal deficit at 3.2 percent while increasing the direct tax income by 17 percent for next consecutive year.


The Budget 2017 was a dig at the opposition complaining over closure of the flagship program MNREGA, which saw a huge jump in fund allocation from `38,500 crore in 2016-17 to `48,000 crore in 2017-18. The finance minister also informed the Lok Sabha that in 2016-17, expenditure in MNREGA was near `47,000 crore while the allocation was only `38,500.

Reiterating the 60 days interest waiver to farm loans, the budget has provisions to provide security against natural calamity to the farmers, which affects mainly the marginal farmers who are to the tune of near 40 percent of the farmer’s community. The finance minister announced to increase the cropped area coming under crop insurance from 30 percent to 40 percent. But, he didn’t give any information about the performance of the crop insurance scheme that the government of India introduced last year with so much of fan fare.

Impetus on agricultural credit has been addressed in this budget as lending targets of the agro credit has been increased to `10 lakh crore with special focus on the marginal farmers. The finance minister announced in the Lok Sabha that NABARD has been instructed to regulate and monitor the credit lending while MNREGA has been subject to proper regulation and monitoring.

Though, the budget has provisions to increase the farm output by providing soil health cards and other required assistance that our farmers require, it tries to increase Indian farmer’s income from allied agricultural sectors like dairy. The budget 2017 vows to double farmer’s income in next five years by investing in irrigation and dairy infrastructure. Irrigation fund under NABARD has been doubled to `40,000 crore while horticulture farming would be amalgamated with the agro processing units to ensure proper pricing of the horticulture products. Milk processing infrastructure would be developed in rural parts of India with an investment of `8,000 crore in next three years. The budgetary allocation for this purpose in 2017-18 has been `2,000 crore. To address the contract farming, budget 2017 has provisions to make Modern Law for Contract Farming to ensure financial safety of the farmers and their land.


While presenting the budget, finance minister Arun Jaitley informed the Lok Sabha that before demonetization, total number of bank account that had income above `5 lakh was only 76 lakh. Out of which, 56 lakh accounts are of the salaried class. Hence, only 20 lakh bank accounts of the private people had informed their income above `5 lakh. However, comparing it with the number of car sales and the number of people visited overseas for business purposes, it gave contrasting image of the non tax compliance society. But, after demonetization, number of bank accounts that deposited `2 lakh to `80 lakh was to the tune of more than one crore while the number of bank accounts that deposited above 80 lakh was 1.48 crore. The finance minister informed that due to the demonetization, Income Tax Return filed by individuals have gone up by more than 34 percent which huge in the history of Indian tax department. Though, the finance minister refrained to give information about the average black money that government of India received due to the demonetization? But, this move is expected to increase net tax revenue of the government which is expected to grow by 17 percent for consecutive year.

Probably, this was the major reason for the government to create a tax slab for the tax payer citizens giving relief to the middle class by creating a slab of 5 percent tax net for `2.5 lakh to `5 lakh annual income group. Moreover, in order to avoid duplication, the existing benefit of rebate available to the same group of beneficiaries is being reduced to `2,500 for those with income upto `3.5 lakhs.  This is a double-edged sword as the combined effect of both these measures would be zero tax liability for people whose income is up to `3 lakhs per annum and the tax liability will only be `2,500 for people with income between `3 and `3.5 lakhs.

To provide home to the middle class, the budget has provisions to give infrastructure status to the affordable housing sectors, a fillip that would pump investment in affordable housing segment to a larger extent. This step can be seen in the light of Pradhan Mantri Gramin Aawas Yojna (PMGAY) vow to give one house to each house hold by 2022 — a program that has catch the eyeball of the common man to a larger extent. In this program, near 30 percent tax relief has been given which is like icing on the cake if we add the lending rate exemption of 4 percent on affordable houses costing `9 lakh and 3 percent exemption of lending rate on affordable houses costing `12 lakh, which was announced by the prime Minister Narendra Modi on new year eve.

However, budget fails to give a road map on how it is going to contain inflation when crude oil prices would go up in coming days in global merchandize as strategic crude oil reserves won’t be able to solve the purpose.


The budget 2017 gives a blue print of new job opportunities coming in coming year. As expected, the finance minister has tried to influence the weaver community of the Uttar Pradesh by indicating sops for the weaver community in this budget in the name of textile sector, though he refrained from announcing in-depth details of the textile industry. But, he pointed out that new opportunities for the rural youth would come from MNREGA, Allied Agriculture industry, real estate as infra status has been given to the affordable house construction, leather and footwear industry, tourism and startups operating in manufacturing sector.

Hailing the infrastructural push in budget 2017 Kishor Pate, CMD – Amit Enterprises Housing said, “The Budget has announced that 1 crore rural houses will be created by 2019, and the outlay for rural housing under PMAY is `23000 crores from the previous `15000 crores. This will help address the housing needs of the homeless and those living in ‘kachha’ houses in the rural areas, and potentially help reduce pressure on urban areas if it is in conjunction with employment generation.”

Anil Pharande, Chairman, Pharande Spaces said, “The Budget has focused on improving rural connectivity through higher kilometers road construction per day. Also, railway stations redevelopment has received a shot in the arm, with 27 stations to be allocated in the current year. This will help connect more areas and create new development corridors. It has also announced that the PPP mode will be used for select tier 2 airports, and a relaxation of AAI Act for commercial usage of land. The Government will also announce a metro rail policy for implementation and financing of such projects, which will generate additional employment.”

Pharande went on to add that with five tourism zones to be established via Special Purpose Vehicles (SPVs), we will see an increase in tourism to the focus areas, with a direct boost to hospitality. It will also increase appetite for second-home investors focused on the tourism-related rental income in these areas.

“The Government has announced that 250 proposals for electronic manufacturing worth 1.2 lakh crore have rolled in. Obviously, this has a direct potential correlation to employment generation and therefore demand for housing in and around the identified manufacturing nodes,” said Anil Pharande of Pharande Space.

Apart from this, Skill India program expanding to 600 districts in next year has to be seen as a step towards enhancing youth potential and making them equipped to cash in the opportunities coming their way via Startups coming in tier-2 cities via various flagship programs like Make In India, Startup India etc.


As Indian market is often accused by the global investors of red tapism and long process to be followed before making any investment, the Indian government looked to address the foreign direct investment to provide ease of doing business in India. Proposal to abolish FIPB is in sync with this aim. These days, FDI has become much easier at entry point. Only 10 percent of the FDI require intervention from the parent ministries. 90 percent of the FDI are immediately invested. FIPB goes through the same set of norms which the ministries go. So the FIPB is abolished to remove a hurdle.


The proposal to abolish FIPB would enable 95 percent of the FDI coming in through automatic route bringing transparency in the industrial investment. It also vows to discourage portfolio investment which is not a concrete investment as the investor can fish out his or her money by selling out its shares over night. Hence, promoting institutional investment is expected to create job opportunities to a larger extent. Apart from this, the budgetary proposal to curtail 5 percent income tax exemption to the MSMEs that have an annual turnover of up to `50 crore is expected to serve around 94 percent of the total MSMEs who file ITR and falls under the tax net. This move is expected to boost the morale of small and medium enterprise as they would not only attract FDI, they are expected to get benefit of better performance in coming year. Hence, flagship programs like Make In India, Startup India and Skill India would together create a lot of job opportunities, if implemented in sync with the government expectation because this budget addresses woes of Startups like incentive for investors, long-term stable policy, single window clearance via GST. The sector’s demand for levy income tax in an incremental manner has already been met partially in Prime Minister’s New Year eve address to the nation.

But, credit flow to these startups may become a major hurdle as Public Sector Banks have been asking for `1.1 lakh crore recalibration packages from the government to come out of the NPA pressure while the government has allocated only `10,000 crore in this regard via Indradhanush Plan. Hence, in coming year, it is unlikely that public sector banks would curtail their lending rates and puts a question mark from where these banks would bring money to meet their lending target of `2.44 lakh crore mentioned in the budget 2017.


It is a digital economy budget. Government has pushed the digital theme in every area of the budget. Every person from small shops to consumers are pushed towards the digital economy. Tax benefits, incentives to use digital payments and extending loans based on a digital footprint will create a larger merchant ecosystem for digital payments. Incentives for labour intensive sectors including housing, farming and dairy will help SMEs to create new jobs. Focus and attention to bank NPAs, as well as increasing bank capitalisation is a great step towards strengthening the financial system of the country. Finally, the income tax rate changes will encourage more people to report their incomes and create a larger tax net for the country. Overall, it is a great budget that will encourage people to move to the formal economy and derive benefits.

As push to digital economy was visible in this budget, concern of internet penetration and lack of Smartphone users in India was also visible in finance minister’s budget speech. Waiving off service tax being levied on the railway e-tickets booked through IRCTC and bringing Aadhar linked payment system for those who doesn’t have plastic money has to be seen in this light. The government looks determined to bring as many transactions under the government net as it is possible for them to bring in. Proposal for 10 Lakh PoS has to be seen in this light as it would enhance e-payment in rural India.

Since, internet penetration is a major hurdle in increasing mobile-transactions or BHIM App transaction, the budget 2017 has proposal to allocate `10,000 crore under Bharat Net program, which aims to increase internet penetration in India. It also vows to increase Smartphone manufacturing in India which would allow new users to get such phones at cheaper rates so that it helps increase number of Smartphone users in India.

This budget has proposals to address illegal political funding too. The budget has proposal to ban political parties to receive cash above `2000 from one source. However, they are allowed to receive any amount as donation when it’s coming via cheque or digital transaction. This budget also proposes to amend the RBI Act that vows to simplify electoral bonds which can be bought either via cheque or via digital transaction and these bonds would be redeemable by any political parties by showing it in their Income Tax Return or ITR.


The budget 2017 was finally presented in Lok Sabha on February 1 after so much of ruckuses in Election Commission, Supreme Court and then after the sudden demise of former union minister E Ahmad. The opposition was not in mood to allow the government to present the budget before the UP Polls while the Union Government was determined to present it on the decided date to take advantage of it in five state elections including UP. It did so by presenting a populist budget addressing farmers to a larger extent to influence Western UP voters. It’s budgetary proposals for the SC, ST and Minority Commission is in direct aim to woo Punjab voters which has near 30 percent schedule caste and schedule tribe voters. Similarly, it would be foolish to say that bring income tax rate from 10 percent to 5 percent for the people having annual income in the range of `2.5 lakh to `5 lakh was not for the political gains in coming state polls.

However, major cause of concern for the finance minister Arun Jaitley would be to manage funds for these announcements as they also vow to curtail revenue deficit to 1.9 percent of the GDP and Fiscal Deficit to 3.2 percent. Has he got that much of bank accounts falling under the tax net post demonetization, which would bring hat extra money required to fulfill these populist majors without overseas borrowing?

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