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Finance Ministers Biggest Challenge?

-Sagar Mohan

The year 2016 witnessed two historic economic decisions taken by the government,
one constitutional amendment bill for GST law being passed and, the second being
the demonetization drive. We enter 2017 with a cash crunch across the country
unsure of the impact of these decisions .All eyes now are on the union budget that
would provide indications how the government plans to deal with the uncertainty
and the skepticism that is prevalent

The upcoming union budget is both unique and challenging for many reasons.
Firstly, the date of the budget has been advanced by a month. The advancing of the
date ensures that government can implement financial decisions by April 1 without
any delay. However, this also means that estimates will now be based on the data
available only for first two quarters of 2016-17 as the advance estimates of the third
quarter are usually available only by February

Secondly, it would be the first time the railway budget would be presented
combined with the union budget. Departing away from a 92 year old tradition a
single appropriation bill would be prepared including the estimates of the Railway
budget. The process of preparing the Railway budget however remains the same.

Thirdly, economic indicators such as GDP, Index of Industrial Production, and

balance of trade have all shown a declining trend recently. The weakening of the
rupee and the OPECs decision to cut crude Oil production further worsen the
scenario. Also the industry is still suffering from the hangover of the demonetization
drive. This makes it a challenge for the Finance Minister to inject some kind of
economic stimulus to push the demand. Ignoring the polls that are due to happen
around the time of budget it still makes economic sense to present what might be
referred to as a populist budget.

And lastly and most importantly there is the daunting task of estimating the indirect
tax revenue for the fiscal year 2017-18 given the uncertainties in implementation of
GST.The original expectation of GST coming into effect from April 1,2017 seems
highly unlikely now, but given it is a transaction tax it could be implemented from
any month next year . The challenge however remains in estimating the indirect tax
revenue. GST was supposed to be revenue neutral tax which meant that switching
over to GST should not impact overall indirect tax revenue. But given the uncertain
economic environment and fact that the GST council is yet to agree on many details
such finalizing the categorization of goods and tax rate on services it becomes
nearly impossible to get a near accurate estimate of the indirect tax revenue.

The most likely solution would be to state the assumptions and ensure a
contingency fund for any delay in implementation of GST or departure from the
rates currently proposed. The exercise is not going to be an easy one but is possibly
the only option available.
Given all these challenges the budget promises to be a landmark in Indias growth
story. The finance minister has the unenviable task to manage the change in
traditions, stimulating economic growth and ensuring smooth implementation of
Indias biggest tax reform all at the same time. We hope that the poetry quoted by
him in his last speech continues to inspire him.
Kashti chalaane walon ne
Jab haar ke di patwar hamein
Laher laher toofan mile
Aur mor mauj majhdaar hamein
Phir bhi dikhaya hai hamne
Aur phir yeh dikha denge sabko
Ki in halaat mein aata hai
Dariya karna paar hamein
- Arun Jaitley, Union Budget, 2016