Populism won't work in Budget 2015: Jaitley shouldn’t emulate rival Sisodia

Shankaracharya of Kanchi Mutt once famously remarked that new temples shouldn’t be built but instead the ones languishing should be refurbished and restored. Suresh Prabhu, the Railway Minister, did precisely that in his maiden Railway budget 2015-16. A chartered accountant, he knew the importance of capacity utilization and harped on the need for strengthening the existing infrastructure, eschewing in the process the temptation all his predecessors had succumbed to—announcing new trains and projects, many of which never took off but remained in the drawing board permanently.

But his colleague Arun Jaitley, the Finance Minister, cannot afford to do an encore of Prabhu today while presenting his second general budget because the central government needs to create jobs and take the idea of make in India forward. Indeed he would have to implement a slew of measures that would rev up the somnolent real economy with a bang. That incidentally also rules out he emulating Delhi Finance Minister Manish Sisodia who in the name of living upto AAP’s Delhi election manifesto resorted to rank populism in halving electricity tariff for those consuming upto 400 units a month and making water free for those consuming not more than 20,000 liters a month. AAP is ruling a city whereas Modi is ruling the entire India. The media is guilty of drawing a parallel between the two governments. AAP can afford to resort to gimmicks for the time being but Modi and Jaitley have to get down to brasstacks, with the nation expecting them to revive economy, primarily manufacturing.

The budget needs to do something sincere and substantial to encourage manufacturing. You cannot run with the hare and hunt with the hound which is what the simultaneous existence of MAT and incentives like 190% deduction for additional employment created means. It is farcical to entice corporates to give employment opportunities hooking them with a bait of weighted deduction over a period of three years for additional wages paid only to annul the same with the clobber of Minimum Alternate Tax (MAT) or book profit tax in a manner of taking one step forward followed post-haste by a step backward.

Investment allowance should be more ungrudging and liberally granted. True, earlier it was available only if the investments in plant and machinery were of the order of at least Rs 100 crore. Jaitley brought it down to Rs 25 crore last year. Even this seems to be on the higher side. It ought to be further reduced to Rs 10 crore so that even SME companies and firms are attracted. Moreover, investment allowance to be meaningful must be in addition to depreciation and should not be subsumed by it. In other words, the tax benefit for the investor should be 115%—100% by way of depreciation over a period of time and 15% in the year of investment by way of investment allowance.

The Modi government should also stand its ground on the issue of land acquisition. Restoring social impact assessment would be going back to square one with land acquisition getting embroiled in environmental and societal considerations which while being important should not condemn economic growth perpetually to the comatose state. Indeed manufacturing jobs are the key to reviving the economy and correcting the skew in favor of the services sector besides containing social unrest.