The Modi 2.0 Budget presented by the Finance Minister Nirmala Sitharaman, marked a significant shift from the Nehruvian economy of promoting large public sector entities and rests its focus on farms and villages. With a clear target of building a $3 trillion economy in the immediate future and $5 trillion in the course of time, the new government wants the private sector to be the driver of this rapid economic growth.
Nirmala Sitharaman’s first budget of Rs 27.86 lakh crore has several interesting features. Through her 2 hours 17 minutes long address she presented an ambitious budget, spread across sectors widely. According to her “the soul of India is in its villages”, so the economy is set to get a boost with the empowerment of villagers, women and farmers. It sees the farms and increasing rural income as the pivot. The Pradhan Matri Awas Yojana Gramin (PMAY-G), Pradhan Mantri Gram Sadak Yojana (PMGSY), Bharatmala, Sagarmala and Udaan are designed to be engines of connectivity and rural & urban – now being called ‘rurban’ – growth. The 1.25 lakh km new roads would entail Rs 80,000 crore investment.
The Scheme of Fund for Regeneration of Traditional Industries (SURTI) will create 100 clusters for 50,000 artisans. The ASPIRE for promotion of Technology Business Incubators (TBI) in rural industry proposes another 100 clusters to develop 75,000 skilled entrepreneurs in agro-rural industry sectors. This is in addition to 10,000 new Farmer Producer Organisations (FPOs), apparently with corporate interface, to ensure economies of scale for farmers over next five years. The PM digital saksharata, Jal Shakti in 256 districts, e-nam, APMC, Swachha Bharat for rural solid waste management are designed to spur rural growth.
Many of these would be a bridge between urban and rural growth. These are backed by many programmes for industry. This is likely to create demand and spur the growth of the industry and allied sectors.
However, the finance minister has thrown a spanner. Her proposal to levy additional excise duty, road and other cess of Rs 2.50 on petrol and diesel will be inflationary as it would shoot up transport expenses at all levels. This may thaw the economy. Already cess and duties are high on fuel. Tolls are at atrocious rates. It calls for a re-look and withdrawal of the proposal to keep economy on track.
Another act of raising customs duty on gold, already high at 10%, to 12.5% is questionable. Presumably, gold is mistakenly considered an item of consumption by the rich. The reality is that no marriage in poor or rural household is complete without purchase of gold. Those suggesting imposing such levies forget that during NDA-I Atal Bihari Vajpayee had taken the prudent decision of having zero duty on gold imports to stop smuggling. Higher duties are happy indicators for the smugglers, who have links with international gun, drug mafias and terrorist organisations. Though the aim is to raise revenue, it may end up increasing surveillance at multiple sectors causing revenue loss. Ideally, this needs to be rolled back as the losses outweigh gains.
Similarly, TDS on cash withdrawals of over Rs 1 crore, not large enough sum for even small businesses, may cause slowdown. The government should not be in a hurry to digitalise economy. Cash is the fastest transaction method. Linking it to black money – simply meaning untaxed – is misnomer. Let the cash lubricate and speed up economy. Digitalisation should be a normal and automatic process. There are apprehensions too for digitalization as many Aadhar-linked accounts are stated to have been defrauded. Government needs to go slow and withdraw such strange rules that make dealings and tax filing cumbersome.
It was expected that the FM would say some words on abolishing income-tax. Instead increasing rates to 42.7%, for an income over Rs 5 crore does not bode well. High taxes reduce disposable income and are dampener for the people to consume. She has still time to review it. Indian economy needs simplicity in the tax administration. More is the rigmarole, more the complication for the economy. The NDA-I had started on a good note. The FM should continue that. Besides, those who have been let off up to Rs 5 lakh income should be allowed not to file tax returns. This only burdens the tax office with more clutter and little benefit. Another correction in the system should be to allow taxes, as of now, to be calculated at Rs 5 lakh instead of forcing those who earn a rupee above it to pay from the base rate of Rs 2.5 lakh. This is dichotomy and is not a good sign for tax administration. This drains a taxpayer of huge sum to feed an oversized government at the cost of the economy. Sooner, the FM does it, would be better for all – taxpayers, tax administrators and the market. Politically too it would soothe the voters, who have, as the FM in the opening paragraph said, overwhelmingly supported the Modi government, “putting the nation first”. A small gift would have larger dividend.
Taxing the bank deposits does not suit the welfare nature of Narendra Modi government. It may give small revenues but it causes immense hardship to those who save. Savings, the FM says, has to be encouraged to boost the economy. The TDS and low interest rates dampen the enthusiasm of the savers. Her words must match the deeds. It’s a necessity not only for the savers but for a nation that is pining for funds. If savings are taken care of, the government would not have to look for borrowings abroad as the FM’s speech indicate to spur growth and fiscal management. This swadeshi move would make easy finance available to government and save forex.
The FM may need to do some rework, to contain inflation, which after this budget, is likely to rise to 5%. For a $5 trillion economy in nine years, it would require a growth rate of at least 11% not 8% as the Economic Survey indicated. With a little vision, the budget 2019-20 can become the real growth propeller and effectively deviate from the residues of Nehruvian economy.