Bharat Prime Minister Narendra Modi government’s Interim Budget 2019-20 has shaped up as a comprehensive Budget with an eye on the upcoming General Election. The Budget has proposed to give support to small and marginal farmers owning up to 2 hectares of land, pension yojana for workers in the unorganised sector after they cross 60, income tax relief of up to Rs. 5 lakh of annual net taxable income for the lower middle class, an increase in the standard deduction on annual income from Rs. 40,000 to Rs. 50,000 for the salaried class, zero TDS on total interest earnings of up to Rs. 40,000 up from Rs. 10,000 on deposits kept in banks and post offices, tax exemption on capital gains to be available on two house properties, and many more steps aimed at pleasing the farmers and middle classes. However, the devil, as always, is in the details. A large segment of Indian farmers have no land of their own, so their concerns have not been addressed. Going by the conditions mentioned in the pension scheme for the unorganised sector workers, it seems that it will benefit only those who are starting their working life. It is not clear to what extent it will be useful for the workers who are on the verge of crossing 60. Also, unorganised sector workers seldom retire at 60. It is not clear whether they will be entitled to the monthly pension even if they continue to work after crossing 60. The income tax relief, by its very structure, will be limited to people with relatively low income levels. It unnecessarily penalizes high income tax-payers. While the zero TDS on annual income earnings is now Rs. 40,000, the limit for TDS exemption from savings kept in bank accounts remains unchanged at Rs. 10,000 per annum. Therefore, unless one increases his deposits with post office accounts, he cannot avail the additional exemption.
The Budget aims to contain the fiscal deficit at 3.4% of GDP in the current as well as next fiscal and then bring it down to 3% in 2020-21. However, several economists have pointed out that several public institutions have been used to mobilise resources from the market on the backing of sovereign guarantee. But such items have been kept as off-balance sheet items. Thus, the fiscal deficit figures may not reflect the reality.
Several pro-people steps have been taken in the Budget. Rs. 1,330 crore has been provided for protection and empowerment of women. Allocation for integrated child development has been increased. Interest subvention for loan in case of crop failures due to natural calamities is provided. The government has maintained its rural spending at 8% of overall Budget; however the focus has been on indirect support mechanisms.
There was not much in the Budget towards boosting investments by the private sector. Corporate sector, especially the bigger players, did not get any benefit. Corporate sector has to pay heavy tax. Tax on dividend and taxing again in the hands of the recipient of dividend, do not leave much with the entrepreneurs and corporates for reinvestment and for rainy days / period of slump.
Corporate tax needs to be rationalised. Reduction in rates for smaller companies will of course be beneficial. It is still high. These units also need to save enough to meet the emergency caused by government policy flip-flops and/or global and domestic macroeconomic uncertainties. Government may consider setting up a Rainy Day Fund whereby corporates or promoters can contribute 10% of their annual profit before tax.
Under Pradhan Mantri Kisan Samman Nidhi (PM-Kisan), an assured income support of Rs. 6,000 per year payable in three equal installments of Rs. 2,000 each (first installment in March 2019) to the small and marginal farmers having not more than 2 hectares of land is appreciable. It may be termed as dole. Addictions like drinking and gambling have become a menace. This easy money can add fuel to such bad habits. Recently 116 persons in UP and Uttarakhand died due to drinking of spurious alcohol. In many cases, land records are not appropriate. There are co-owners. There will be dispute. It would have been better, as opined earlier, to create social infrastructure, farm infrastructure, give free cattle and build in every village cattle sheds like industrial sheds where farmers can keep their cattle, but rear the cattle themselves, as farmers do not have land to keep cattle. In rural areas housing is a big problem. One’s heart breaks when you see the living conditions of small and marginal farmers. Substantial work could have been done with an annual outlay of Rs. 75,000 crore, which could have given the farmers the ‘Samman’ that they duly deserve.
The Finance Minister’s mega Pension Scheme for workers in the unorganised sector aims to provide them an assured monthly pension of Rs. 3,000 from the age of 60 years. To be eligible for that, one has to contribute a small amount of Rs. 100 from the age of 29 years and Rs. 55 from the age of 18 years per month till the age of 60 years. The government will deposit an equal matching amount in the account of the worker. Additional funds will be provided by the government as and when needed. This will ensure safety of ageing workers as they are left uncared for by family members. There are loopholes in the scheme (as already mentioned earlier) which need to be sorted out by the government.
During the next five years, five lakhs villages will be converted to Digital Villages. At this juncture, more than digital villages, the country needs villages with sound infrastructure in terms of food grain storage, housing, irrigation, water supply, sanitation, employment, shelter for cattle and easy connectivity to markets. As a follow-up to an announcement made in the Budget, the Cabinet has approved a proposal for setting up of the ‘Rashtriya Kamdhenu Aayog’ (National Commission for Cows) for conservation, protection and development of cows and their progeny. Creation of a corpus of Rs. 2,000 crore for development and up-gradation of infrastructure in over 10,500 rural and regulated agriculture markets across the country.
The Budget has announced some steps towards providing some impetus to the real estate sector. Steps like waiving taxation of the notional rent on a second property owned, capital gains tax exemption made available on two properties subject to a maximum capital gain of Rs. 2 crore, increase of TDS threshold on house rent from Rs. 1.8 lakh to Rs. 2. 4 lakh per annum, tax benefits to developers of affordable housing projects, etc. have been announced. Subsequent to the Budget, a Group of Ministers looking into the issue of GST on housing projects has favoured the lowering of GST rate on under-construction houses from 12% with input tax credit to 5% without input tax credit and has also favoured the lowering of GST rate on under-construction affordable houses from 8% with input tax credit to 3% without input tax credit.
Due to various external factors 369 infrastructure projects show cost overrun of over Rs. 3.58 lakh crore. Many are stressed assets. Budget did not address the problem of accessing funds for the infrastructure sector. It is high time the government should come out with guidelines on how the investment norms for insurance and pension funds can be eased so that more funds from these entities can flow into financing of infrastructure. Such entities are repositories of long-term funds and are thus best suited for taking exposure in the long gestation infrastructure projects, at least in the post-construction phase when the risks are largely mitigated. However, subsequent to the Budget, the Reserve Bank of India (RBI) has allowed bidders for stressed assets under Insolvency & Bankruptcy Code (IBC) to tap external commercial borrowing (ECB) under approval route in order to mobilise resources in order to bid for such assets. This is a welcome move as these resolution applicants will be able to raise funds at substantial lower rates.
Stock market is very volatile. Investors have lost precious capital. Nifty midcap index and smallcap index has given up 21.5% and 34.8% respectively since the start of 2018. Foreign portfolio investors have remained net sellers for most of 2018. Domestic institutional investors (DIIs) bought shares worth almost USD 16 billion. Numbers of shares have hit their two-year lows. Weak corporate earnings, uncertain environment and global slowdown are keeping investors off the market.
Income tax and direct taxes are very complicated. Interpretation of laws and rules breed to multifold legal disputes. Digitising of returns and assessments without calling the assessors and/or knowing an assessed, mentioned as a future target in the Interim Budget, will not solving the tax-related problems. In its zeal to collect more revenues, random/harsh tax is often levied by tax department, also there are cases of discretionary interpretation of tax rules by the authority which results in harassment for the tax-payers. An assessee can go for appeal. For filling an appeal one has to deposit minimum 10% to 20% of tax amount. Is that fair? Money thus gets diverted from business and remains locked up until the cases get sorted out which take their own sweet time.
Indian economy: The pace of growth in deposits has not been able to keep pace with credit growth. As per RBI data, credit grew 15.1% from a year earlier in December, while deposits grew 9.2% in the same period. Banks’ credit-to-deposit (C-D) ratio rose to 78.6% in December, the highest since March 1971, when it was 79.3%. Deposits need to be increased by providing adequate incentives.
RBI has reduced risk weights for bank lending to NBFCs to facilitate credit flow to well rated Non-Banking Finance Companies (NBFCs) excluding Core Investment Company (CICs).
Interim Budget has not helped to boost sustainable and inclusive scale of economy. Not only agriculture, but entire rural economy is in bad shape. Direct transfer of money or universal income is not going to help.
Investment in infrastructure and affordable housing will create employment and fuel consumption.
Fear psychosis from tax authorities and other authorities need to be dispelled. Faith is essential to do business with ease. If natural resources e.g. oil, coal, hydro etc. are exploited optimally, unemployment will ease and economy will grow. Subsidy is an essential evil, but it must benefit small and marginal farmers exclusively.
An alarmingly high percentage of fresh students (graduates and above) are not considered employable by potential employers. There exists a yawning gap between the desired skill sets and the available skill. Urgent action is needed to bridge this skill gap. A growing population of educated unemployed is a ticking time-bomb. While our politicians keep talking about ‘demographic dividend’, without the right skill sets, this can become a ‘demographic nightmare’. Government, industry and academia must work together to address this problem. Urgent action is needed on this front.
May Bharatwasi leaders instil among all Bharatwasi the spirit of hard work, discipline, unity, for welfare of all as call given by Swami Vivekananda.
Prayer for the social consciousness - welfare of the people
O God! May our prayer be one and the same
May we belong to one fraternity
May our minds move in accord
May our hearts work in unison for one supreme goal
May we inspired by a common ideal
May we sing thy praises in congregation
May our innermost aspirations be perfectly harmonious
May our heart beat in unison
May absolute concord reign in our minds
May we all be welded into strong fellowship and unity.
May we enjoy the wealth as one
May we dedicate our lives to eradicate the evils of society
May we strive at all times for the well being of the people
May we realise that in mankind nobody is higher or lower
May we toil along the path of progress by diligently
exploiting natural resources
By Dr H P Kanoria
— Based on the Holy Vedas
Dr. H.P. Kanoria
Editor in chief
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