Economic Highlights

New Delhi, 7 March 2016

Game Changer Budget

CUT TAXES TO SPUR GROWTH

By Shivaji Sarkar

The Union Budget has changed the thrust of India’s economy whereby it stresses on agriculture for the first time since 1991, which began an era of liberalization-globalization for industry and manufacturing and neglected the farm sector.

Undoubtedly, it is a fine Budget, but could have been better with some relief in direct taxes to increase the rural and urban middle class’s purchasing power.  Taxing people with an income of about Rs 22,000 a month in an economy that has seen severe erosion due to high inflation since 2009 is not prudent.

In fact, Finance Minister Jaitley might consider raising the income-tax threshold to at least Rs 3.5 lakh (Rs 29,0000 a month) from the 2016-17 fiscal in his final reply. As it would not cause any loss to the Government but could earn the goodwill of the poor.

Despite this, the 2016 Budget is a major course correction as it gives credence to Mahatma Gandhi’s ‘Back to Village’ concept and Deen Dayal Upadhyay’s Ekatma Manavavad. Which is an acceptance that the country cannot progress without participation of 54-58 per cent people, roughly 80 crores who are dependent on farm-related activities.

There is no gainsaying it is possibly the beginning of the implementation of the BJP’s 2014 election manifesto wherein the Party had underscored it would accord high priority to job creation and opportunities for entrepreneurship through labour-intensive manufacturing, traditional employment bases of agriculture, housing and steps for self-employment opportunities.

Notably, the doubling of allocation to agriculture and farmers welfare from Rs 15,809 crores to Rs 35,984 crores along-with Rs 86,500 crores for irrigation in the next five years, if implemented properly could be a game changer for India’s economy. This is expected to boost farmer’s income, relieve him from distress and reduce rural poverty.

The Budget also stresses on water utilization, new rural infrastructure and conserve soil fertility. Also, the fasal bima and reduced burden of loan repayment due to provisioning of Rs 15,000 crores towards interest subvention is likely to reduce farmers’ distress.

Besides, even MNREGA has been tailored to meet the needs of rural areas and farming. Enhanced allocation of Rs 38,500 crores could be utilized to create ponds, dig wells and compost pits. If this augurs well it would increase farm labour demand and might ultimately wean people away from MNREGA to productive work.

Pertinently, various other measures for increasing farm and dairy yield, better procurement practices, Pashudhan Sanjivani (cattle wellness), Nakul Swasthya Patra (animal health card), E-Pashudhan (cattle) Haat, an e-market portal for connecting breeders and farmers, National Genomic Centre would also help the rural economy. The dairy sector too would get Government support of Rs 850 crores in the next few years.

Importantly, the Budget opens up FDI for farming and the food sector and proposes to allow 100 per cent FDI in marketing food products. According to the Government this would create vast employment opportunities but it has to be seen how various organizations which are opposed to FDI react to this.

Further, each Panchayat would get Rs 80 lakhs and urban local body Rs 21 crores for bettering the standard of living, sanitation, connectivity and better health in the coming years.

The Budget reinforces the social sectors including education and health wherein allocation has been increased by 9 per cent from last year’s Rs 1.39 lakh crores to Rs 1.51 lakh crores. Schemes for welfare of women have also seen a 12 per cent surge to Rs 1.01 lakh crores from Rs 90,000 crores.

Also, the health insurance of Rs 1 lakh per family and Shyama Prasad Mukherjee Rurban Mission for improving rural infrastructure is likely to change the landscape for a cleaner and healthy India.

Higher education which has created a strong community of non-resident Indians gets priority for having employable youth and world class higher educational institutions, initially 10 each in public and private sectors, to help these emerge as teaching and research organisations. An allocation of Rs 1000 crores has been made for higher education financing as there have been complaints about the competence level of graduates and post-graduates.

Moreover, the Budget incentivizes creation of new quality jobs in the formal sector. The Central Government would pay the employers’ contribution of 8.33 per cent Rs 1,000 crores in 2016-17 for all new employees to the Employees Provident Fund Organisation (EPFO) for the first three years of their employment.

Apart from ensuring continuity of jobs and the needed social security this should also puts a check on the tendency of employers not to show new employees in their books, adding to tension and stress among young workers. The Economic Survey too stresses this point.

Additionally, a push has been given to entrepreneurship through 100 per cent deduction of profits for start-ups, Rs 1.8 lakh crores loans through Mudra Yojana and major boost to scheduled castes/tribes and women in the stand-up programme.

True, these steps increases burden on the Finance Minister as he has to pay 10 per cent more and 42 per cent to States as share of taxes. But he has made it up through introduction of many cesses: Krishi Kalyan Rs 5,000 crores, infrastructure  Rs 3,000 crores and various others will burden taxpayers by 12 per cent more, earning the Government net revenue of Rs 1.94 lakh crores, almost one-tenth of the total budget of Rs 19.78 crores.

Higher taxes might act as dampener to the proposed positive steps and would even prove inflationary, a major concern of the Government. But it is sandwiched between welfare needs and fund crunch. Consequently, it has to understand that higher taxes reduce purchasing capacity.

Buying a car is no more a luxury and putting a ‘sin’ tax on it might hit manufacturing, a priority area of this Government. Similarly making eating out expensive has led to closure of many restaurants and eating jaunts, almost acting contrary to what the Government seeks to promote as entrepreneurship.

Thus, the Government should reconsider lowering of service tax and levying of some other cesses. It also needs to consider removal of TDS on bank deposits. Interest accruals are mere hedging of value and not earnings.  True globally this is a critical juncture but India stands apart due to its domestic strength and demographic dividend.

Clearly, discussion on how to have more revenue through promoting overall economic activities need to be considered as income tax ends up in more disputes and collection costs. A view on this also needs to be taken to completely break away from Manmohanomics! ----- INFA

(Copyright, India News and Feature Alliance)