Despite the election year approaching, Modi government presented its last and full budget heavily biased towards rural India and set aside the temptation of opting for a populist budget. The Union Government geared itself to focus on bringing down the economic inequalities while committing more funds for social security and health care on the one hand and improving rural infrastructure as well as agricultural incomes on the other. Clear indications are towards reducing the tax rebates, limiting the subsidies to the needy few and a dead-end to all roads leading to tax evasion.
What do the Sliding Markets Signal?
A bullish stock market in response to budget proposals could have been a positive response that it favours the elite and the powerful for accumulating more wealth. Initially, the markets responded positively as the union finance minister started his budget speech. Since the announcement of tax proposals, markets felt the jolts for some time with the Sensex tanking 450 points. By the end of the speech, the Sensex regained around 280 points and ended up the day with a loss of 58.36 points. The reintroduction of the capital gains tax after a gap of 14 years has been the biggest disappointment for the stock markets. The 10 percent long term capital gains tax is going to be levied on profits from shares and equity mutual funds if they exceed more than Rs. 1.5 lakhs. Big investors and companies have gained around Rs. 3.67 lakh crores last year on their stock market transactions, of which government couldn’t get a single penny. The Finance minister was prepared to face the wrath of the wealthy and levied the capital gains tax on all transactions post Feb 1, 2018 – a progressive move and need of the hour.
Hand holding Mid-Sized Enterprises
Industry segments have long been asking for relief on corporate tax, as the current figure is at 30 percent. Many investor friendly nations put lesser corporate tax burden. In the battle to lure large scale investors, it is crucial to reduce the corporate tax burden. Companies having a turnover of Rs. 50 crores were only levied 25 percent corporate tax in the last fiscal. This time the limit has been increased to companies having a turnover of Rs. 250 crores. With this single move, of the 6 lakhs companies around 5,93,000 companies were brought under the 25 percent tax slab. Remaining 7000 are huge investment companies having higher turnovers in lakhs of crores. This move is a big relief for the mid-sized companies.
Curbing the Black Money
The demonetization move has not yielded expected results to mine black money. It seemed that a passive and corrupt system of banking administration diluted the spirit of demonetisation and colluded with the culprits. There wasn’t much growth in the corporate taxes immediately after demonetization. However, there has been a surge in the number of individual taxpayers to a whopping 8.27 crores. Even then, in a country of 120 crore people a meagre 7 percent are income taxpayers who are bearing the burden of pulling the entire nation’s needs directly is a concern to worry. Post GST implementation, there is a steep growth both in the corporate tax and income tax revenues. Tax evasion has become difficult to the businessmen as every transaction is getting into the books. It is the business people who are rivalling the GST mechanism when compared to opposition parties. Common people should be educated that in the place of multitude of indirect taxes that they used to pay, GST has come to their rescue as a single tax system. The government’s commitment to streamline and make the GST system fool proof is commendable. The Government announced that crypto currencies are illegal and all investments in such currencies will be investigated. This is going to be an effective anti-money laundering measure.
Relief to the Salaried?
The government should have been more compassionate about giving relief to the growing number of salaried that are caught in the income tax web. It’s been a sheer disappointment for the salaried who were in a hope for comfort through higher exemption limit and revision of existing tax rates and tax slabs. The reintroduction of Standard Deduction has not provided much relief to the salaried class. Jaitley may announce a few discounts to this class of honest tax payers during the budget discussion. One positive note is the relief for the elderly through increase in the taxable interest amount to Rs. 50,000/- which is currently at Rs. 10, 000/-. To double the current limit of investing Rs. 7.5 Lakhs in Life Insurance saving schemes with an effective interest rate of 8 percent will go a long way to benefit the senior citizens.
Fortifying the nation’s backbone
Effectively, all agriculture produce is getting value addition with the extension of increase in the minimum support price to Kharif crops also. The finance minister’s proposal to increase the minimum support price (MSP) by 1 ½ times is laudable despite the fact that the MSP is still not fixed as recommended by the Swaminathan commission. Yet, only 5.8 percent of farmers are going to be benefited because of this increase in MSP. A substantial majority of Indian farmers are small, and marginal having little holding capacity and sell their produce to the middlemen immediately after the harvest. To benefit them, the central and state procurement agencies must work hand-in-hand. Increasing the agri loans by 10 percent to 11 Lakhs crores by next fiscal, sanction of ‘Kisan cards’ to dairy farmers, incentives for organic farming, support for producers of perfume oils, herbal plant growers, upgradation of 22,000 village fairs to Village Agricultural Markets, increasing access to credit to tenant farmers, expanding the gamut of crop insurance, incentives for drip irrigation, extending irrigational facilities to more areas etc. will strengthen the farming sector and build morale among the vulnerable farmers.
Aayushmaan Bharath
The World’s largest health insurance scheme announced by the government to cover 10 crore poor families through National Health Protection Scheme will help the lesser privileged to meet their annual medical expenditure up to Rs. 5 Lakhs. Along with this, the Finmin also pledged to rejuvenate the health and wellness centres that are a part of government’s commitment to provide comprehensive health care services both in the urban and rural areas.
Big Boost to Infrastructure
The finance minister announced massive investments for development of national highways, rural roads, housing for the poor, modernization of railways and upgrading security to the railway passengers. The proposal to construct one crore houses in the country, of which 37 lakhs to be built in the urban areas by 2019 is going to be a gigantic feat. It is also proposed to construct 9,000 Km long national highways. These proposals will certainly boost employment both directly and indirectly. It is also proposed to provide free electricity to four crore rural and urban poor houses with quality distribution, besides developing alternative sources of energy like air, solar and green power. The emphasis on skill development, entrepreneurship, improving learning outcomes and educational standards are appreciable. Enough funds have been allotted for the infrastructure sector.
Implementation – The real Challenge
The rural India is in a serious debt trap. A substantial proportion of budgetary outlay is rightly allotted for rejuvenating the rural India. The government announced magnificent schemes for meeting the needs of both rural and urban poor, the small and marginal farmers. The ambitious rural package aims at providing free gas connections to three crore new households, free electricity connections to four crore new homes, constructing two crore new toilets, and fifty-one lakh new houses. Strengthening infrastructure is itself a major challenge. The budget tried to fill in the blanks where the support was needed, and one cannot find fault with the direction of the budget. The National Health Protection scheme is a much-needed social security intervention. Much depends upon the ability of the government to implement the schemes on a war footing as announced. Will the sober bureaucracy come out of its self-imposed hibernation and rise to the occasion? Hope ! Pray !!
This article was written by Dr. B.Sarangapani
