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Guest Column: The Sholay of All Budgets: Mitrajit Bhattacharya

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Guest Column: The Sholay of All Budgets: Mitrajit Bhattacharya

Arun Jaitley has delivered a "Sholay" of a Budget laced with great intent, good content and some great showmanship. It's indeed a budget where even the sharpest critics of the government can't possibly rate lower than 8 out of 10. Now let's start by checking what the FM has delivered on what I had predicted pre-Budget two days ago on last week.

Pre-Budget: Now that the Government will achieve its target of 4.1% of GDP as the fiscal deficit, the FM should go ahead with on-course announcement of fiscal deficit of around 3.5 to 3.6% for 2015-16. There can't be any better time than this as the import bill of fuel is at an all-time low. Spectrum auction will also help bridge the gap between revenues and expenditure.

Post-Budget:  FM has pegged the Fiscal Deficit target at 3.9% for 2015-16 and revised his target of reaching 3% by 2018 instead of 2017. His rational for holding back slightly is to allow the Government to spend for growth. Pretty good, am convinced. A mark of caution, crude prices are going up once again!

Pre-Budget: Divestment targets need to step up substantially from Rs 60,000 crore last year to stay on course with reforms.

Post-Budget: Strategic sale of PSUs gets a huge push by the FM. Considering, the divestment targets were revised last year by half to just about Rs 31,350 crore, the FM now targets Rs 69,500 crore from PSUs by strategic sale and selling PSU shares on the stock market. Once again, in lines with my expectations.

Pre-Budget: An area of concern for the FM is the Current Account Deficit. Following the relaxation of gold import in May 2014 on the basis of improving CAD, gold imports surged six times to US 5.6 bn during the festive month of November. He needs to keep a fine balance between a growing CAD and ease of jewellery import, which is so critical for the industry.

Post-Budget: One of the most significant announcements in Budget 2015 has been the Gold Monetisation scheme. Many economists in the past have consistently held the view that "private holding of gold by individuals" as one of the main reasons for low growth of the Indian economy. FM's new scheme addresses this issue by allowing potential increase of supply of gold to the jewellery industry as well as for investment purposes. Also there will be no need for higher import duties on gold. This announcement can have far reaching impact benefitting households as well as the macro economy at large.

Pre-Budget: The main concern lies with implementation of GST. Though it's likely to be implemented in 2016, its blueprint will be finalised over the year. It appears after accommodating the needs of the Centre and all states, the final rate of GST could be steep and hence detrimental to business and consumers. It's all upto the FM to steer us right through this difficult negotiation amongst all stakeholders.

Post-Budget: No concrete announcement on this barring reconfirmation of the dates of implementation in 2016. However, increase of service tax by 2% is just one step towards getting consumers used to a higher consolidated GST.

Pre-Budget:  I urge the FM not to take populist measures to satisfy the recently alienated vote bank for the party and stick to economic decisions best for the country vis-a-vis direct taxes and tax exemption limit

Post-Budget: He has tinkered around a bit here and there but kept everything almost the same for the tax-paying class. He has increased the surcharge by 2% for the super-rich (with taxable income of over 1 crore), thereby planning to garner around Rs 9000 crore in tax collection. Scrapping of the wealth tax merely is an accounting jugglery shifting all assets to the new income tax compilation.  Overall good.

Now the other highlights:

1.      Huge boost to corporate sector by reducing corporate tax from 30% to 25% from next year.

2.      New beginning for getting black money stashed abroad by announcement of new laws.

3.      Huge investments of Rs 70,000 crore in the infrastructure sector.

4.      Massive boost to tourism by taking the number of countries under visa-on-arrival to 150 up from a mere 43. Tourism growth helps generate employment.

5.      Election bound states of Bihar and West Bengal get 20,000 crores as special assistance economic packages.

6.      Welfare funds and health breaks will bring cheer to the aged. Also under Atal Pension Yojana, the government will pay 50% of the premium,
limited to Rs. 1000 each year for five years for accounts opened before Dec 31, 2015.

The concern for the spending middle class remains the higher service tax of 14% and the increase of services which come under the tax regime. Added to that, if and when the government plans to levy the 2% Swachh Bharat Cess, your effective service tax could well be 16%

To sum up: FM's Budget 2015 "appears" to be much better than it is in "reality". But perception matters.

The author is Publisher, Chitralekha Group and President, AIM.

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