To begin with, Finance Minister Nirmala Sitharaman got the symbolism wrong. Going back to ‘bahi-khaata’ in the electronic age, when even ‘aadhtiyas’ have discarded the cumbersome ‘bahis,’ did seem rather incongruous. A briefcase is always handy to carry papers and small files, especially the FM’s Budget speech. She ought to have stuck to it — everything our colonial rulers did need not be discarded. Just when the focus is on digitising all facets of governmental activity, Finance Minister carrying a ‘bahi-khata’ on the most important day in her annual calendar does seem rather odd. As for the Budget, as always it is a mix of good, not-so-good and completely negative. Given that this was the first budget of a government which had just won another five years in power, she could have been bolder in pushing the reform agenda, lowering corporate taxes across the board, doing away with irksome exemptions which deface the entire taxation system and provided fillip to mid-level businesses and industries to grow more.
Land reforms did not find a mention, but labour reforms did, but a weak one, with the entire cache of laws being reduced to four codes, (whatever that might mean since we do not have the details). Sitharaman leaned in favour of an incremental approach, the trademark of the Modi Sarkar. First, the ubiquitous common man. He was given tax sops in the interim pre-election budget four months ago. He is now called upon to pay more for petrol and diesel whose cascading effect on prices might however be modest given the prevailing low rate of inflation. But the real worry may be the erratic monsoon.
But ‘aam aadmi’ stands to gain from higher interest subsidy on home loans taken up to March 2020. A 2.5 per cent hike in gold import duty might hurt if he still insists on buying jewellery for his children’s wedding. Otherwise, it is a salutary step to wean Indians away from a wasteful custom, though the smugglers too will be happy unless we can clamp down on their nefarious operations. Tax-payers will welcome the interchange of Aadhar and PAN card for filing tax returns and also like the proposed elimination of a human interface in case of scrutiny of returns. Hike in import duties on a few select items is unlikely to hurt the ‘aam aadmi’.Holding fiscal deficit in check at 3.3 per cent signals a tight control on expenditure despite a huge step-up in infrastructure spend. Nitin Gadkari’s allocation for roads and highways has actually been reduced but this is likely to be more than compensated by the proposed cess of Rs one per liter on petrol and diesel for the vital sector.
At a time when the global economy is slowing down, and there are clear and present red signals emanating from the US-China trade war, Brexit, war-like noises in the Middle East, etc, the plummeting domestic growth required the export-push. A special effort ought to have been made to attract foreign investors keen to leave China due to higher costs and a rising uncertainty. A package of sops with an eye on major global brands has been offered but is unlikely to persuade them to set up shop here in the absence of a holistic environment. For, we are in no position to lay the red carpet for world-renowned companies the way China did but we can still be ambitious, especially when presence of these has a huge spin-off effect on the ancillary sectors.
Also, corporate sector is unlikely to be pleased with the reduction of promoter shareholding from 35 per cent to 25 per cent, which will oblige marquee names such as TCS, Wipro, etc to offload a huge chunk of shares in the market. This at a time when the promoters of a major private sector bank are engaged in a bitter legal battle to retain a higher than 35 per cent holding. Mercifully, the return of wealth and inheritance taxes was a false scare. Corporates need to be regulated alright but they cannot be spurned. Without the revival of the corporate sector the dream of an eight percent growth, as envisaged in the Economic Survey a day earlier, will remain a pipe dream. It is good that the corporate tax has been moderated to 25 per cent from the earlier 30 for companies with a turnover of Rs 400 crores, which was earlier Rs 250 crores. This leaves out only 0.7 per cent companies which will pay the old 30 per cent tax.
The hike in income tax rate by three and seven percent for those earning between Rs two and five crores and those above Rs five crores will more than compensate the outgo from extending lower corporate tax to companies upto Rs 400 crore turnover. A welcome move is to get the RBI to regulate the reckless non-banking financial sector. Startups have won major incentives and the confusion over income and capital gains from premium pricing of shares is cleared.
To push electrification of vehicles, and reduce dependence on fossil fuels, huge incentives are offered to realise the goal of a complete switch to only electric two-wheelers by 2022. The disinvestment target of over Rs one lakh crore is achievable if the government does not waver as it did in the case of Air India in Modi-1.0. But our problem with the Budget in particular and the government in general is that instead of going in whole hog for reforms, economic, including land and labour, capital markets, et al, it has settled for an incremental approach. At this rate, we will continue to play catch-up with China indefinitely. And not realise the goal of a $ five trillion economy by 2022.