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No big bang idea in Union budget

Dr D M Deshpande

The Finance Minister, delivered perhaps, the longest ever budget speech in our living memory; true, it appears to be a budget for detail and addresses most of the sections of society. There is something for everyone. Sizeable cuts in personal income tax coming on the back of huge decrease in corporate tax, is one example. Rural economy needed a boost and it gets one. The thrust on infrastructure was expected widely; it is there with an outlay of around Rs 27,300 crore. Perhaps a target of 50k could have qualified as a big bang and a great idea to get the economy out of the rut. That probably could have galvanised and prompted the private sector to invest more in infrastructure and the economy. Start ups, real estate and MSMEs, NBFCs have all been taken care of in this budget, may be to a limited extent.

Corporate taxes were lowered only recently and there was not much of expectation on that count. Additionally, power generation companies are now brought into this 15 per cent tax bracket. There was a great expectation in personal income tax. On the face of it, the cut in rate slabs look big and across the income spectrum. There is no change in the income tax exemption limit. A person earning a salary in the range of Rs 5 lakh to Rs 7.5 lakh is now required to pay 10 per cent; earlier this was 20 per cent. Again, for someone in Rs 10 lakh to Rs 12.5 lakh, tax payable is 20 per cent, down from 30 per cent. There are three more slabs taking the total to 5.

It was pointed out in the budget speech that a person with an income of Rs 15 lakh would stand to save Rs 78,000 in tax. Interestingly, new taxes proposed are optional. The new norms come with a string attached-that there will be no other concessions or exemptions. Hence, a tax payer can choose to remain with the existing provisions which give various exemptions or decide to migrate to what is termed as a simpler new regime with no exemptions. Actually, this exercise makes the whole thing more complicated. So, you will still need an expert to tell you which one is beneficial to you specifically! Further, multiple rates proposed were not really warranted; they go against the tenet of good fiscal policy. The best option would have been to borrow from the recommendations made by the DTC (Direct Tax Code). They are an excellent blue print of badly needed reforms, rationalisation and restructuring of direct taxes.

In fact, an alternative hypothesis suggested that there was no need to give big tax cuts now as most of it would only go in to savings and not in spending. On the contrary, what is needed for the economy to wriggle out of current impasse is enhanced spending. Therefore, the Finance Minister would have probably put more money in the hands of farmers and the rural economy so that it would have boosted consumption and demand. Perhaps, allocation to MGNREGA- the much talked about rural employment guarantee scheme- could have been enhanced. The wage rate could have been hiked.

The government, possibly, was constrained by available revenues. What is not clear is why the FM was hell bent on keeping deficit within normal limits-3.5 per cent for the current year and 3.8 per cent for the coming year. Clearly, some slippage on fiscal front would have done a lot of good to the economy. Yes, additional money should have gone into right hands; it wouldn’t have served any purpose had the amount been spent in an unproductive way.

Two redeeming features of this budget are the abolition of dividend distribution tax (DDT) and second the announcement regarding partial disinvestment in LIC. Along with long term capital gains tax, DDT was a major irritant for stock markets. However, the market has not reacted positively to this measure. Probable reasons could be that it expected capital gains tax, too, would be withdrawn, which has not happened. Secondly, dividends would now be taxed in the hands of recipient, that is, the shareholders. While this may not pose problems with resident Indians, it does create problems in case of foreign investors. That was, in fact, the reason why this tax was levied and now it is back to square
one.

It has been assumed that disinvestment income will double in the coming year. While some plans are in the pipeline and some headway has been made in respect of strategic sale of Air India (AI), yet it is not going to be easy to reach the target laid down. Partial disinvestments are easier to push through-there is no criticism of ‘selling the family silver’-test of character is in strategic sale. AI elicited nil response from bidders in 2018. Now the government seems to have learnt its lesson and made positive amends in its recently released expression of interest. Yet, it is a tall order involving mammoth organisations, employees and accumulated debts.

Though devoid of big bang ideas, this budget does have a series of small things which if implemented well might still augur well for the economy. There is no explicit word about the bad state of the economy. But distress in rural and country side is hinted clearly. The 16 points action plan may appear a bit long, dull and boring but there is a lot to be done in the sector. Assurance of doubling farmers’ income is simply an eyewash. Agriculture is growing at less than 2.5 per cent and there is no way it will leapfrog to 8 to 10 per cent growth overnight. All 16 points of plan of action are needed to put the agriculture on right track. Initiatives on farmer producers companies, farm credit, APMC, use of technology, irrigation- all are welcome
measures.

There is a proposal to set up a new Investment Clearance Cell which is supposed to provide end-to-end facilitation. It is not clear whether it will be another agency like FIPB (Foreign Investment Promotion Board). We already have more than enough bureaucratic hurdles; we do not need one more unless it is mandated to clear all proposals in a time-bound, investor-friendly and transparent manner.

Education gets a huge allocation, over Rs 99,000 crore; health is given Rs 69,000 crore. Above all, agriculture, allied activities and irrigation is allocated Rs 2.83 lakh crore. Most of the schemes and plans are good. Increasing the limit on deposit insurance to Rs 5 lakh from the present Rs 1 lakh is a welcome move aimed at alleviating the sufferings of the poor and the lower middle class depositors in sordid events such as PMC. This budget is for detail. While GST remains work in progress, it has been reiterated that reforms in it will continue. It has over a hundred small ideas which, if implemented in right earnest and in a time-bound manner, will have a spin off effect on the economy. Markets have reacted negatively to the budget-Sensex falling by nearly 1000 points. Markets are not a good measure; they are known to show kneejerk reaction only to retract later after a few days. Making this budget, in retrospect, is a smaller challenge; implementing it will be a major one.

(The writer is Ex Vice Chancellor of ISBM University, Chhattisgarh)

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