Union Budget 2015: Ordinary Ahoy!

First, let me give a disclaimer before I get into the nitty-gritty of budget analysis. Overall, this has been quite a good budget, and in normal routine times, it might have got 8.5/10 or so. But then these are extraordinary times with extraordinary ambitions, and so, we all need an extraordinary budget and not routine, as routine brilliance is nothing but mediocre in such times!!!

There seems to be quite a euphoria related to the formation of MUDRA Bank as well as the allocation of INR 1,000 Cr to start-ups. But before we all start celebrating, we need to pause and ask about what happened to the INR 10,000 Cr which was allocated last year to start-ups! Last year, the Railways Minister in Modi Government’s maiden railway budget said that every budget makes lots of promises but only a few get implemented and the rest remain on paper. Hence, it is high time the Govt provided implementation records and performance reviews of all the announcements made in previous years’ budgets.

In order to put the nation on a high growth trajectory and to create happiness all around, the Govt needs to foster an environment which enables entrepreneurship, the creation of jobs, a fair level playing field, and a sense of fairness & stability in the legal system. Unfortunately, the budget this year falls short in all parameters.

The Indian tax regime has remained as complicated as ever, and by postponing GAAR, the Finance Minister has just chosen to ignore the elephant in the room. Furthermore, a lot of provisions against black money have been brought in, but how the legal part of it will be solved remains unclear. Given the backlogs in nation’s courts and overall sad state of legal affairs, it’s high time the Govt takes another look at the budgets allocated to the judiciary and work on creating capacities in the system. Unfortunately, the Budget 2015 has chosen to remain silent in this area.

Besides the unstable legal environment, another major issue affecting entrepreneurship and creation of new business is red tape and the amount of paper-work involved, and in this budget, there is now a proposal to appoint an expert committee to oversee all that!!! So now yet another expert committee to view and analyze, which most probably means things will remain as they are. This budget has really fallen short on the expectations regarding making things simple, done no more than offer some words, and it seems words are all we have.

It’s high time we see some real action on cutting of the red tape rather than going back and forth on the same issues. In 2010, the then Govt made a bold move of bringing Direct Taxes Code (DTC) and to do away with all exemptions and thus plug all leakages as well as corruptions. DTC faced stiff resistance from existing power centers then also, and in this budget, got a quick burial.

The announcement related to MUDRA Bank is quite welcome, but again, rather than being a provider of capital, the Govt needs to create an environment where private capital shall flow in an efficient manner and create opportunities for all stakeholders. If Govt provides capital, it will lead to crony capitalism, and in long-term, will distort the system instead of reforming it, as we all have seen in the case of PSU banks in terms of high NPA/high real estate prices. Given the fact that SMEs in India suffer very high-interest costs (18% or above) and have continued to face challenges in terms of slowing demand and high-interest costs as well as real estate costs, it will be better if the interest rate for SMEs are lowered in the way it is done for the housing sector. Here again, this budget missed the chance to kick-start the economy in a major way and has chosen a rather timid option of creating another institution.

The Indian economy, notwithstanding the performance of SENSEX, is witnessing one of the toughest period post-2008/09 with falling corporate earnings as well as a reduction in overall capital formation. Large corporate, as well as small business, are facing serious challenges since overall consumption is falling due to drop in available discretionary income at the individual level on account of the very high cost of housing (EMI/Rentals), inflation and almost flat growth in income. Given the fact that 40% to 50% of individual income in young families, which are the basic blocks of the economy, goes towards housing in the form of rental/EMI, it is high time Govt increases affordability of the first house, and at the same time needs to discourage crowding out by investors. Unfortunately, this budget has remained totally silent on this aspect.

Overall, I agree that though the main aim of a national budget is to present checks & balances of annual revenue along with expenditure and provide an outlook of the overall economic health of the country, the annual budget for all practical purposes needs to go a little beyond that. It needs to shape-up the long-term behavior of the public at large by way of taxation, policies, etc., and therefore, by continuing to focus on exemptions, allocations, and tax limits, it seems that this year the Finance Minister has chosen to grant/allocate more medical leaves right when the economy needed lifestyle changes to jump-start to the next level.

However, it is still a great peace-time budget and would have done well for the economy. But as I said, we are in the middle of extraordinary times and this war-like situation, to which this budget fails to give direction, hope & vision and settles for ordinary. Hence, it shall be rated as 4/10.