What to Expect in Budget 2018
Finance minister Arun Jaitley is all set to unveil the fifth and last Union Budget of the Narendra Modi led NDA government. There are finally some signs of a turnaround in the economy post demonetisation and GST. While small businesses were hit by demonetisation, it helped the BJP win elections in Uttar Pradesh, Uttarkhand and Goa. The focus of the discussion at the pre Budget panel discussion at Business Today was on the stress in rural India and lack of employment opportunities. The discussion moderated by BT Editor Prosenjit Datta included Abhijit Sen, former member, Planning Commission; D.K. Joshi, Chief Economist, Crisil; Rahul Garg, Leader, Direct Tax, PricewaterhouseCoopers; Bidisha Ganguly, Chief Economist, Confederation of Indian Industry; Ashwani Mahajan, National Co convenor, Swadeshi Jagran Manch; Sunil Sinha, Principal Economist, India Ratings and Mukesh Butani, Managing Partner, BMR Legal. The panel was clear that the focus of the Budget would be on agriculture and could also include out of the box ideas to reduce rural stress. Excerpts:
BT: What is the state of the economy?
Prosenjit Datta We will take a quick stock of the economy and options before the finance minister (FM) given that there is angst in the rural economy. How do you see the economy after the CSO announced advanced GDP growth at 6.5 per cent?
Abhijit Sen: The advanced GDP numbers show a certain amount of optimism, and some reservation. Optimism means the first half was 6 per cent and the second was 7 per cent that's a pretty significant jump. However, 6.5 per cent I think is below expectations of a lot of people, certainly not mine. If we go deeper, the CSO said things might be even worse. If you take out errors and omissions the rate of growth will be 5.5 per cent. It is the errors and omissions which is driving it to 7 per cent.
As the world economy is looking up, the Indian economy is not. We have done better than the world economy for some time now. When it has been going up, we've been growing faster. After a long time we are going in the opposite direction. Exports of countries in our neighborhood are picking up, while our exports average is pretty low. There are sectors auto and some parts of FMCG who are quite optimistic. A very large number of our traditional exporters are not optimistic. They see the woes of demonetisation and GST continuing.
Finally, it is assumed that inflation in the second half will be lower than in the first half. That would fly contrary to what has been happening up to now. Inflation is trending a little bit upward. These numbers tell you that the CSO expects it to come down. The second is that the indirect tax realisation, the difference between GDP and GVA (gross value added) figures, is actually going to increase quite sharply from around 8 per cent to about 13 per cent per annum. This means indirect tax collections will start booming in the second half. That is contrary to what we are observing with GST collections. So, there is optimism built into both these things.
I agree with Dr. Sen on numbers, but I am more optimistic about future numbers. Last year, and earlier, we have been making structural adjustments be it demonetisation or GST. Indirect tax collection numbers are not very encouraging, but there is optimism on the future. We are getting 90,000 crore of GST collections a month, but it has to be raised to 1 lakh crore. This year, I'm optimistic because the PMI Index is showing better results. When we compare it with previous three four years, we find better performance in the industrial sector which indicates better demand and manufacturing output. These are the drivers of economic growth. Yes, farm output is not good, but, as far as future numbers are concerned, as Dr. Sen rightly pointed out, we have picked up from 6 per cent to nearly 7 per cent in the second
The second thing is happening in services. We have a tax law that says if management services are provided from India to 30 overseas companies, then those companies could be treated as tax resident in India and expose them to taxes in India. If you look at the ASEAN, I find there are fewer white skin expatriates now than before. You have an opportunity to create India as a service hub for the global economy and global corporates. We are unable to do that because if they create a management services portfolio here in India, they expose all service recipients to taxes in India.
