Budget 2018: The missing political dimension

NEW DELHI: One way of studying the union budget is to see it as an expression of the political strategy of the government of the day. Through a combination of taxes and
spending, not only does the government choose to influence the economy, it also rewards, punishes and promotes areas which matter politically.

When seen in this context, finance minister Arun Jaitley’s forthcoming fifth budget speech will be unique. For the first time, the budget speech will have little space devoted to indirect taxes such as service tax and central excise. This is on account of these taxes being subsumed into goods and services tax (GST). GST rates can be changed only by the

GST Council

, a body which is represented by finance ministers of states and the union.

A look at recent budget speeches shows how changes in some indirect taxes were highlighted to signal something important to government. For example, Jaitley’s budget speech in 2017 was delivered in the backdrop of demonetisation and the related drive to encourage cashless transactions. This aspect was flagged in Jaitley’s speech. Of the 58-page budget speech, nine were devoted to indirect taxes. One item in indirect taxes which was flagged was the removal of customs duties in point-of- sale card reader to promote cashless transactions.

If this change was something that sent a signal on BJP’s overarching message of wanting to fight black money, there are other changes which were meant to address a more limited audience.

To illustrate, in Jaitley’s first budget speech in 2014, there was an indirect tax benefit granted to “sports gloves” which was flagged in the minister’s speech. In the first budget of UPA-II, finance minister Pranab Mukherjee highlighted indirect tax concessions to fuel obtained from vegetable oil. When this change is juxtaposed with subsequent budgetary measures of UPA-II, the tilt towards farmers is apparent. This important political dimension will be missing in 2018, making the budget speech unusual.

As budget speeches are always going to remain a political messaging opportunity, it is reasonable to assume that the finance minister will find ways to offset the signaling opportunity provided by the long section on indirect taxes. One of the most interesting aspects of the forthcoming budget speech, therefore, will be the analysis of methods the finance minister uses to compensate for the absence of central excise and service tax changes.