By Sameer Kochhar
The Budget 2019 has addressed in a limited way the farm distress by providing relief to small and marginal farmers upto Rs 75,000 crore for an income support scheme and interest subvention up to 5 per cent in event of natural calamity. The direct income transfer scheme, Rs 6,000 a year, in three installments, to farmers with land holdings of less than 2 hectares, is expected to benefit 120 million farm households. It leaves out landless farmers, who are worst affected by the rural distress and have little to fall back upon.
Interim Budget has exempted income tax for income upto Rs 5 lakh for individuals. With rebate of Rs. 12,500 for the individuals having income upto Rs 5 lakh will not have to pay any taxes. Both the reliefs are aimed at two big constituencies farmers and the middle class.
The two measures tax sops for the middle class and farm relief do not in any meaningful way address the structural problems of the recurring rural distress and the jobs crisis staring educated young Indians in the face.
There is a marginal slippage in fiscal deficit target for FY 19, as fiscal consolidation has been diluted yet again. The fiscal deficit is estimated at 3.4 per cent of GDP despite a significant increase in expenditure of Rs 75,000 crore for the farmers income support, pension scheme for unorganised workers and a 100% jump in the personal tax exemption threshold from Rs 2.5 lakh to Rs 5 lakh.
This seems overambitious and may prove detrimental to the achievement of targets. Given that this is the election year, the expenditure is likely to increase exponentially in comparison to the last year. The net borrowing programme has already led to some flutters in the bonds market. Moody s Investor Service declared the budget credit negative for the sovereign. The budget deficit appears to be proposed to be financed through larger than expected market borrowing (net) for both FY19 and FY20. The bond markets have reacted to this news adversely.
Growth achieved in direct tax base, both in terms of number of tax payers and tax collection, has allowed for direct tax benefits. The middle class will give the thumbs up to this budget. It s good for consumers-focused industries. More than the increased disposable income in hand, what would have brought relief to most is the announcement on the phasing out of human intervention from tax verification and scrutiny.
Government aims to completely digitalise income-tax return verification and scrutiny over the next two years. This phasing out of human intervention will reduce tax terrorism. Anonymous scrutiny assessments using a back office, if implemented efficiently, would reduce tax terrorism considerably. The promised non-adversarial tax regime is a plus for investor confidence. The other gift for the middle class is of owning a second home without worrying about tax on notional rent. Capital exemption on sale of one house property has been extended to two. This is a good move, given many couples like to purchase two properties for two children.
Other benefits aimed at the middle class include standard deduction to be increased from Rs 40,000 to Rs 50,000 for the salaried and an increase in the tax deduction on account of interest from saving bank from Rs 10,000 to Rs 50,000.
To its core constituency, waiting eagerly to see if the Ram temple s construction will be initiated in this government s term, the ‘Rashtriya Kamdhenu Aayog’ has been announced to upscale sustainable genetic upgradation of cow resources and to enhance production and productivity of cows. The Aayog will also look after effective implementation of laws and welfare schemes for cows. The allocation for Rashtriya Gokul Mission was increased to Rs 750 crore. However, the Interim Budget contains nothing for the vast mass of young unemployed and the jobs crisis remains unaddressed.
In an election year, it is a populist budget. Its sole purpose is to please sections of voters unhappy with the government. One of the biggest giveaways of the Finance Minister Piyush Goyal s heart not being in budget-making or promoting growth and jobs is that capital expenditure, as a percentage of GDP, has been budgeted at 1.6% in 2019-20, showing a fall compared to the previous year. It seems a clear response to the loss of three key Hindi heartland states since last summer to the opposition in state polls.
While the Modi Government has reached several milestones since 2014 when it came to power, there are still, quite a few that seem too far-fetched for being only the election planks. The target to reduce the corporate tax rate to 25% that was set during 2014 remains unfulfilled. This, in addition to many more that were promised as part of his 2014 high-profile election campaign which to a great extent have diminished the credibility of the government. What is interesting to watch this year is how Modi further manages to package the old wine once all over again.
Arun Jaitley, while presenting the first budget had said that we shall leave no stone unturned in creating a vibrant and strong India, vowing to raise the pace of economic growth to 7-8 per cent in three to four years from less than 5% then. Yes, if the base year did not change, nothing much would have changed from five years ago!
The budget betrays an attitude of just making promises to get over a set of adverse circumstances without thinking through the details. The approach was seen also at the time of roll out of demonetisation and the Goods and Services Tax. Policy making, for sure, calls for a far more serious approach.
(The author is a Chairman SKOCH Group is a Reforms historian and has authored widely acclaimed ModiNomics and The Untold Story of Indian Reforms amongst several other books. Views expressed in the article are his personal)