There is so much hype centred on the annual budget that the reactions to it are guided as much by expectations as by the reality of the budget proposals. The budget that was presented on Saturday, February 1, was anticipated to be one that would signal the revival of the economy from the slowdown that has characterised it in recent months. Consequently, there was disappointment writ large in the stock markets as the marathon budget package unfolded. The huge fall in stock prices could well give way to greater realism on the constraints faced by Finance Minister Nirmala Sitharaman when markets open after the Sunday break. At least that is the expectation of Sitharaman in the run-up to the market re-opening. In any budget, the fine print is a crucial element and that emerges as analysts and experts pore over the budget papers in their total sweep. There was indeed a widespread feeling that this budget would be a boon for the middle class, especially the salaried class that is groaning under the weight of ever-rising prices. Truly, the new income tax rates are a tad lower than earlier ones but there is a rider. Taxpayers can opt for new slabs only if they are prepared to forego exemptions. If they take advantage of concessions, the old rates will continue to apply. That is a major dampener.
For an economy that is demand-constrained and investment-starved it was imperative that the truth be recognised and then tackled with foresight and understanding. Was that reflected in this year’s budget is a moot question today. Some measures are forward-looking and positive but the package as a whole fails to inspire. Yet, some finance ministers in the past have sprung surprises in implementation while others with impressive array of proposals have flattered to deceive. The challenge for Sitharaman is to turn a mediocre budget into a great catalyst for change. While jobs were an area of great non-performance and high expectations, there is little evidence of an impending boost to employment. Prime Minister Modi defended the budget saying that four sectors are major sources of jobs — agriculture, infrastructure, textiles and technology — and all these have got special attention in the budget. He claimed investments will see creation of jobs and help the economy grow. However, there is not enough to translate that desire into reality.
One good that has emerged from this budget is the realisation that a level playing field needs to be provided to domestic manufacturers particularly in the medium and small scale manufacturing sector. This sector has suffered greatly from unfair competition and dumping of goods particularly by the Chinese under which Indian small and medium industries have had to close down en masse, rendering millions into unemployment. As customs duties on diverse items like shelled walnuts, peanut butter, shavers, hair dryers, table and kitchenware, footwear, toys and other things have been hiked, there is bound to be an increase in prices. But this sorely needed to be done and must be pursued if joblessness is to be tackled. Likewise, the move to abolish dividend distribution tax for companies and taxing dividends in the hands of the shareholders will hit rich shareholders hard while protecting the small and medium ones. Another measure to plug leakages is the 5 per cent tax collection at source for individuals remitting over Rs7 lakh under the Liberalised Remittance Scheme. Indians have been sending an average US$1.5 billion abroad every month for education, travel, purchase of immovable property, maintenance of close relatives etc, which will now come under the tax net beyond Rs7 lakh.
There is a new thrust towards public health in the budget with a hike in allocation but defence expenditure has remained static despite the trend towards acquisition of sophisticated weaponry to modernise the equipment of the armed forces. It would be a big blow if resource constraints hit defence modernisation. Agriculture was expected to get a big boost but there is little evidence of a thrust towards it in the budget. The Modi government could well have a big price to pay for this seeming short shrift of this vital sector. All in all, this is a budget that has some positives but is lacking on macro changes.
