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Does India's 2017 Budget Impress?
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Does India's 2017 Budget Impress?

 
 

The Bharatiya Janata Party-led Indian government of Prime Minister Narendra Modi presented the country’s annual budget on February 1. This budget is notable because it is the first time since 1924 that the colonial practice of presenting different Union and Rail budgets has been discontinued. Finance Minister Arun Jaitley presented a combined budget instead.

It was unclear whether the budget would be presented on time until January 23, when the Supreme Court dismissed a petition that sought to postpone the budget from February 1 due to the upcoming elections in several Indian states. The court said, “There is no illustration to support that presentation of Union Budget would influence voters’ mind in state elections.”

India’s most populous state, Uttar Pradesh, goes to the polls starting on February 11. With nearly a sixth of India’s population, Uttar Pradesh’s political and economic decisions have an enormous impact on governance in the country. Polling has already begun in the states of Goa and Punjab, with extremely high turnout reported. By all accounts, the BJP has a stiff challenge in all these state elections and opponents of the party were concerned that the central government would use the budget to bolster the BJP’s chances. However, this seems to not have been the case. In fact, the budget contains within it an attempt to stamp out political corruption: a cap of 2,000 rupees has been placed on cash donations to political parties.

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The budget has, overall, been received positively by commentators and analysts.

A report from the Wharton School of Business at the University of Pennsylvania wrote of the budget that “The Indian stock markets welcomed it: The Bombay Stock Exchange Sensitive Index (Sensex) ended the day at 28,141, a gain of 485 points or 1.76 percent and moved further up the next two days.”

According to The Economic Times, one of the main goals of the budget is to “nudge the large majority of those outside the tax net, to come in.” According to some sources, only 1 percent of India’s population actually pays income tax. India’s recent demonetization and Goods and Services Tax (GST) were moves to make business more manageable, incentivizing fewer people to dodge taxes. The new budget has reduced the corporate tax from 30 percent to 25 percent for medium and small businesses, and has halved the tax rate for individuals making between 250,000 to 500,000 rupees a year, among other things.

The budget is also seen as being mildly friendly to growth and investment. According to The Wall Street Journal, “the government has decided to disband a body that examined large foreign-investment proposals, to make it easier for overseas investors who want to spend money into India. Most such investors now won’t have to face the country’s bureaucratic red tape that led to delays. Those wanting to invest in India will now be permitted to do so unhindered, provided they inform the central bank.”

Additionally, the government has made moves toward increased privatization. It intends to raise 110 billion rupees in revenue from the listing of state-owned insurance companies and 465 billion rupees from the sale of stakes in state-owned companies on local stock exchanges. Infrastructure has also gotten a boost: the budget earmarks 4 trillion rupees to be spent on infrastructure (up from the 3.58 trillion rupees spent on infrastructure last year).

However, there is some concern that defense spending is not enough. For an ambitious emerging power, India’s military does not spend nearly enough to meet its goals of modernization or even vaguely approximating China’s military spending. The 2017 budget gave the military $53 billion, a slight increase over previous years, much of which is due to inflation and ongoing expenses including the salaries of soldiers.

According to a report in Bloomberg, “since 2009, India’s total defense spending has only increased by about $3 billion, in constant 2014 dollars, while China increased its defense spending by about $77 billion over the same period.” However, Modi has promised to spend $250 billion in the coming years to help modernize India’s armed forces, buying new equipment such as jets and ships.

While nothing earth-shattering is contained in India’s budget this year, it is a part of a welcome trend by the government to gradually improve India’s business climate and India’s finances. Even if the defense budget is underwhelming, greater growth for India’s economy can compensate for that later on. India should focus first on economic growth, and then on converting that to greater military power, as China did.

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