Stalwarts of the government are graciously appreciating Finance Minister Nirmala Sitharaman for presenting a Union Budget that aims to take the Indian economy where its GDP will touch $5 trillion.
Increasing the surcharge on income tax for the super-rich from 15% to 25% for incomes between `2 crore and `5 crore and to 37% for income above `5 crore is a good step. A person earning `25 Lakh per month (`3 crore annually) will now have to shell out `76375 more per month for paying taxes. Of course, the number of tax payers figuring in this bracket is very small vis-à-vis the total number of income tax payers. As per the data of the returns filed in 2016-17, nearly 75000 individuals (or 0.16%) reported their gross incomes between `1 crore and `5 crore. This move may not help too much in filling the treasuries.
Similarly, an increase in custom or import duties for number of finished products like cashew kernels, PVC, vinyl flooring, tiles, mountings for furniture, optical fibre cable, CCTV camera and digital and network cameras will make them expensive thereby helping the domestic manufacturers to produce them at competitive prices. Likewise, a reduction in import duties on raw materials will also render the indigenous products competitive. Estimates state that removal of basic customs duty on capital goods for manufacturing of parts and components is expected to reduce the capital cost by 7% - thereby improving the competitiveness of the indigenously produced commodities.
In the same way, the proposal to increase special additional excise duty and road and infrastructure cess each by `1 a litre on petrol and diesel is a step in the right direction. On one hand, it will help to curb the consumption of petroleum products thereby reducing carbon emissions and on the other, it will expedite the manufacturing and use of electric and solar operated vehicles.
Once a sunrise sector, the Indian IT industry is decaying due to the lack of technological innovation and also due to the advent of artificial intelligence and automation in the developed countries of the world. Indians in the IT field are no longer admired for addressing the conventional IT roles like testing, software services and server monitoring. Leading technological companies and start-ups are focusing on innovative technologies away from the services, people and process approach. Thus, the incentives extended to shift towards digital payments and upskilling India’s youth with education in the modern areas like artificial intelligence, internet of things, robotics and virtual reality will yield favourable results in future.
Now where does this budget lose momentum? At the outset, the allotment of funds towards MGNREGA has been decreased from `61084 crore (2018-19 revised estimates) to `60000 crore in 2019-20. The demand for work under MGNREGS is increasing and due to paucity of funds, government could provide employment to lesser number of people vis-à-vis total employment seekers. Statistically, during 2018-19, about 9.11 crore people across rural India had applied for work, but the government could provide temporary employment to about 7.77 crore, which means that around 1.34 crore (15%) people failed to get employment under this scheme. For the mid-day meal scheme, total expenditure came down from 0.63% in 2014-15 to 0.39% (`11,000 crore allotted) in 2019-20. Under the national social assistance programme which comprises of a series of further sub-schemes, share of total expenditure has gradually declined from 0.43% in 2014-15 to 0.33% in 2019-20. Further, in order to combat the predicament laid down due to inadequate government finances owing to lesser revenues and slowing domestic savings, the FM opted for borrowings from abroad through dollar denominated sovereign bonds. But this move is exactly opposite to the approach adopted in 1991. We liberalized our economy to reduce the pressure of external financial dependence and the exchange rate was accordingly depreciated. However, now after almost three decades, we are trying to tread the path of economic slavery wherein external forces will again start interjecting in our policies and leave the government vulnerable to currency fluctuations. Need of the hour is to exercise protectionism through exchange rate appreciation and the proposal is absolutely obverse to what is required. Thus, FM’s move may be considered myopic, which at the most, can help to resurrect the current account only.
To revive the ailing economy, the FM has stressed upon investment led growth and to achieve it through measures like reduction in corporate tax to 25% for the companies with a turnover up to `400 crore, allocation of `70000 crore for recapitalizing public sector banks, easing of FDI norms for insurance intermediaries and single brand retail. But the expedients will try to address the problem from supply side only, thereby completely ignoring the demand side. Any amount of bailout for increasing investment will prove futile unless and until there is enough demand in the economy to absorb the output produced. We have already experienced that reduction in the rate of interest in previous three quarters have failed to kick start growth. Decrease in the spending power is the outcome of disastrous steps like immature introduction of GST, demonetisation, non-remunerative prices to farmers and persistently high unemployment rates and the FM is concentrating upon strengthening the supply side. Economists argue that the way forward is to step up the government spending and use protectionist policies leaving aside the fear of rankings by international agencies. But my assessment is that obsession with the fiscal deficit has not let the government allocate funds for demand amplification.
Thus, a dilemma is being experienced in terms of government policies where on one hand the government is using protectionist policies by increasing the customs duties and on the other, trying to resurrect the Indian economy through cheap borrowings by issuing sovereign bonds. Correspondingly, no respite in taxes for the middle class, feeble assistance for farmers and reduction in allocation towards welfare schemes of the poor and concentrating upon investment ignoring the demand side are beyond understanding. Thus, the budget 2019 which is a roadmap towards the $5tn economy, despite having a good start ended up with a confused sketch out.
Dr. Rajiv Khosla is Associate Professor in DAV Institute of Management, Chandigarh