Union Budget 2017 AnalysisBudget 2017 Highlights: A Brief Analysis by Professor Manohar V Dansingani
A budget is a statement of financial intent, no more, no less. It is not Aladdin’s Lamp.
The Sensex rallied 486 points post budget, relieved that the budget did no damage.
Two adjectives define the Union Budget 2017 :
- Slow global growth (slowest recovery post-recession, worldwide)
- U.K. grows at 2.5% (highest among developed economies)
- Brexit….. uncertainties
- Trumponomics…..can it lead to a black swan event?
- Fear of normalization (increase) in interest rates in the U.S.A. & other countries
- Rising protectionism & de-globalization
- Anger over tax inversion
- India & China going strong (but fears persist)
- Demonetization…….medium-term effects are unpredictable
- The numbers do not add up…..7.9% real growth (over 11% nominal growth) is not visible
- L&T shed 14,000 people, due to challenging environment & slow economic growth
- Infosys released 9,000 employees due to automation
- Over US$ 11 billion have been withdrawn from Indian markets in the last few months
- Huge savings on account of lower crude oil & commodity prices are unlikely to continue
- Unemployment is a problem
- Idle capacity exists across most industries
What was Needed
- Stable economic regime
- Focus on employment generation & manufacturing
- Skill development & effective allocation to education, women empowerment, healthcare & sanitation
- Clarity on GST & rationalization of tax structure
- Increase in discretionary consumer spending (higher disposable income)
- Poverty alleviation. ”Massive Poverty & Obscene Inequality….rank alongside Slavery & Apartheid as social evils.” Nelson Mandela
- Boost to capex by the private sector
- Infrastructure spending
All this: with fiscal constraints.
What was Delivered
- Focus on farmers, agriculture & poverty alleviation
- Infrastructure & housing got a fillip
- Education, harnessing the power of broadband & virtual classrooms
- Defence gets respect
- Financial markets to become more robust & institutions to be strengthened
- Railways move to accrual system of accounting from 2019
- Use of Big Data
- Fiscal Deficit @ 3.2% of GDP & Revenue Deficit @ 1.9% of GDP
The Question Marks
- Demographic dividend has a life & will wane over time
- Crude oil & commodity prices may not stay benign (crude has already doubled from its recent low)
- Actual Fiscal & Revenue Deficits….will they look equally prudent?
- With elections in several states, will there be slippages?
- Bank NPAs, no clear enunciation of the way forward. This can balloon into a serious threat
- Tax evasion: time will tell whether the big fish are caught
- The legacy of retrospective taxes still festers
Hopefully, in the near future, these ideas will be seriously considered:
- Two slabs of Income Tax for individuals (on all sources of income)
Up-to ₹ 10 lakh NIL
Above ₹ 10 lakh 30%
- Universal Basic Income. This requires shutting down several schemes & subsidies, but has the considerable advantages of transparency, convenience, direct benefits, no middle-men, zero slippages & above all, it maintains the dignity of the receiver & does not require proof of impoverishment in order to be eligible.
You rate the budget.
1 Does it Inspire Confidence?
2 Will it Stimulate Growth?
3 Will it Generate Employment?
4 Does it include Meaningful Action for Poverty Alleviation?
5 Is it Prudent & Do the Actions Match the Words?
6 Is it Relevant in the Global Context?
7 Is it Honest & Transparent?
Professor Manohar V Dansingani, B.Com (Hons.), DBF, ACMA, CSCA, CSSBBP, MCSI
author, corporate trainer, professional investor