I have always maintained that the secrecy surrounding Budget preparation and presentation is anachronistic in this 21st century. It appears as though the government is going to ambush people with a surprise. The Budget documents kept in long green bags before the Parliament building—just before its presentation—make it look like multiple body bags are arranged! Why not just present various alternatives for raising funds after giving the factual picture of government finances and let it be discussed for, say a month. In the end, select the alternative that is most feasible.
And given GST and its tax structure as well as limitations of reforms in direct taxes, this makes the Budget only an announcement of different schemes. Any financial plan can be assessed based on the past or on expectations of participants or on similar plans by other organisations. The past cannot be criteria here as a new government has taken over and people’s expectations are running high. There is no method to compare it with the Budgets of other nations due to our size and complexities. Some distinct factoids. It was presented by a woman finance minister after a long time—Indira Gandhi was the first, but that was because she held the portfolio in addition to being PM.
The Budget documents were carried in a cloth bag, not a briefcase—perhaps an eco-friendly measure. It was the first time that ancient Tamil Sangam literature was quoted during the Budget presentation. Now the issues: The focus was on reaching $5 trillion in GDP by 2025 with the minister stating that by the end of this year, we will be a $3 trillion economy. This idea needs significant growth rates than the 6.5-7% we are talking about.
The focus was on infrastructure like single national power grid; tap water for all; goods transportation using inland water; massive Railways modernisation including stations; affordable housing for all; upgradation of educational sector and more. The issue is implementation given our track record of utilising funds for growth.
The other aspect is public-private partnership in improving ailing PSUs—this PPP model had a mixed result in the past and was mostly not successful since the private sector seeks short-term gains. Since our sovereign debt-to-GDP ratio is one of the lowest in the world (at less than 5%) there is a move to set up sovereign wealth fund to mobilise from global investors. Earlier attempts in this have not succeeded due to our sovereign credit rating.
Under the interest subvention scheme, Rs 350 crore allocation is for 2% interest subvention to all GST-registered MSMEs in the current year on all fresh and incremental loans. The government also plans to open a payment portal for MSMEs, particularly for dealing with the government— a loan of `1 crore for MSMEs being cleared within 59 minutes online. The startups and investors who file requisite declarations will not be subjected to any kind of scrutiny in respect of valuation of share premium.
A mechanism of e-verification will ensure that funds raised by start-ups do not require tax scrutiny. Small retailers with an annual turnover of less than Rs 1.5 crore will get pension benefit under the Man Dhan Yojana. Over 3 crore shop owners are set to benefit from the scheme. On the tax front, corporate taxes for all firms having less than Rs 400 crore turnover was made 5% (earlier the threshold was Rs 250 crore) and this covers 99+% of companies.
For individual tax rates, there is no change and income up to Rs 5 lakh is exempted. The moot question is about a poor country like ours having individual income tax rates (of 30%), more than the corporate tax at 25%, when individuals do not have facility to deduct their ‘dinner and fuel’ under ‘company’ expenses. To reduce corruption, faceless I-T assessment in electronic mode involving no human interface is to be launched this year.
One can also use Aadhaar instead of PAN card to file returns. My surmise is Aadhaar will replace other IDs in the years to come, and be somewhat like the social security number in the US, though the government denies it. Financial sector reforms are focused on banks and encouraging FDI. It was suggested that NPAs of banks have come down and huge re-capitalisation is planned. But aggregate write-offs are of the order of `5 lakh crore.
There are moves to re-vitalise the bond market to serve the corporate sector. But unfortunately from 1992, moves are made/considered and committees formed to encourage bond markets, but without success. Also we should note that only 2-3% of aggregate financial savings of households goes into the stock market. We are essentially a bank-oriented economy unlike the US. Household savings constitute the main source for our investments. They are over 70% of our savings. But no steps have been taken to increase it since our domestic savings rates have declined impacting investment rate. It is worthwhile to recall the Economic Survey presented a day before that stressed investment-savings-based growth rather than consumption-based growth. The other announcements are mostly about enhancing existing schemes like power, gas, toilets, etc., to rural households. Funding to women-run Self Help Groups are to be expanded and loans made available to one member. It is suggested that social service groups can get listed in a social exchange. I am not sure how the funding will come to them since by definition they are non-profit organisations.
The Budget speech should have included overall revenue and expenditure and sectoral allocations. Even fiscal deficit which is at 3.3% (from the earlier target of 3.4% in the Interim Budget) was mentioned as an afterthought. Of course these can be found in the Budget papers. In all, the middle class has got a major gain as the tax limit has been enhanced to Rs 5 lakh.
But this may be offset by an increase in gold prices due to duty increase. The Budget is balanced, but more important is the implementation of major infrastructure initiatives that will make life bearable for the middle class. The mandate given to the government is massive; expectations are high and excuses will not be condoned. The proof of the proverbial pudding is in the eating.