In more ways than one, the Piyush Goyal budget was different. First, unlike previous finance ministers, many of them lawyers or career politicians, Goyal, a chartered accountant, did not confine to reading the printed text. He made it lively with detailed explanations of the proposals in English and Hindi. Also, with the forthcoming elections in mind the budget offered a vast range of sops For those familiar with the budgets in Tamil Nadu or Telangana, such a practice should not be surprising.
The NDA budget focused on benefiting significant sections of the population for their vote strength – farmers, workers in the unorganised sector and the urban middle-class salary-earners. Handsome concessions have been offered to these sections, putting a lot of money in their hands which is bound to impact consumer spending and may help accelerate investments and growth.
Direct income support to benefit half households…
The farm sector has been in distress. Despite a comfortable surplus in production of a vast range of agriculture and horticulture products, farmers have been complaining of unfair trade terms. In the short term, significant structural changes are not possible. Hence, on the lead Chief Minister Chandrashekar Rao, the budget has proposed a direct income support scheme of Rs 6000 per year to farmers provided by Telangana having cultivable land up to two hectares. This will benefit 12.56 crore farming households, nearly half the total households. Remember, former Chief Economic Advisor, Arvind Subramanian, thinking aloud on the concept of Universal Basic Income in the 2017 Economic Survey? The advances made in Digital India and banking will facilitate direct cash transfer to the beneficiaries. This appears a better alternative to the write off of bank loans of farmers mooted by the Congress; this will benefit mostly large farmers and also severely impact on repayment commitments on loans.
The second major announcement relates to a new pension scheme for workers in the unorganised sector. Under this scheme Rs 3000 will be provided as monthly pension from the age of 60 for making modest contributions during their work-life. Rs 15,000 is the monthly income limit to join the scheme.
The third large segment to benefit from the budget is the taxpayer. The IT Act has been amended to increase the tax ceiling Rs 5 lakh. This essentially means, for individuals with annual income up to Rs 5 lakh will not have to pay tax. The tax of Rs 12,500 that they would have to pay otherwise will be rebated out. The pristine irony is that if you earn Rs 100 more namely Rs 500,100, you will not be eligible for tax rebate. This means that you will pay Rs 12,500 plus 20 per cent of Rs 100 namely 12,520 as the tax. Somewhere someone has failed out on the homework.
Anyway, the current proposal will benefit three crore taxpayers – that’s nearly half the total taxpayers of around 6.8 crore. It is more than a tad sad that election compulsions are making the government woo the electorate by saying that you don’t even have to pay tax at 5 per cent for an income of Rs 500,000.
For the salaried class, the budget has proposed to increase standard deduction from Rs 40,000 to Rs 50,000. The impact will be considerable on the middle class and the pensioners.
The government deserves to be complimented for selecting the segments that needed relief and attention the most.
Widening the tax base
Some of the tax reforms of the NDA government such as demonetisation and the introduction of GST have helped widen the tax base. Of course, this is still too low at 6.8 crore, just around five per cent of the population. IE has been suggesting targeting a progressive increase of the taxpayers to 10 per cent – 25 per cent over the short and medium terms.
The economy has been growing at 7-7.5 per cent and tax receipts have been buoyant. Despite apprehensions, in less than two years the switch to the GST has been smooth and seamless. It also allayed earlier doubts on such a transformation. Even states like Tamil Nadu that were opposing GST fearing a steep drop in tax revenues, are experiencing buoyancy. The average monthly collections under GST are moving towards Rs 100,000 crore.
Likewise, direct tax collections have also been buoyant with substantial additions to the number of income taxpayers. Total tax revenues are estimated at Rs 25.52 lakh crore and expenditure at Rs 27.84 lakh crore. Capital expenditure has been projected at a healthy Rs 9.5 lakh crore. There is a shift from budgetary allocations to leave such spending to the large public sector undertakings. This is a welcome move in the background of large private investments not taking place to the required extent.
Fiscal deficit – not sacrosanct?
The fiscal deficit has been kept at 3.4 per cent of GDP for 2018-19 and 2019-20 and the target to bring it to 3 per cent of GDP has been pushed to 2020-21. Such targets may not be sacrosanct insofar as the deficits are caused by capital expenditure.
Another complaint relates to jobs. The recent report on unemployment remaining at the highest level after 45 years, also provided a good deal of grist to the critics’ mills. In extended visits to several projects across Tamil Nadu, we found healthy employment growth in several sectors (please see cover story Jobs, Jobs, Jobs in IE January 2019 issue). More interesting is the increase in the services sector and in the unorganised sector that are not adequately reported. We found much migrant labour, especially women from as far away as Jharkhand, Assam and other north-eastern states employed in thousands in textile mills in Coimbatore, marine product processing units in Tuticorin and construction and hotel industries in Chennai.
Taiwanese companies training in quick time employees, especially women, in skilled jobs, we notice, is a recent welcome development. There is a need for sharper focus on the collection of data.
Closely following the Ayushman Bharat that has been implemented with speed and with efficiency the budget proposals have been designed to benefit the broadest cross-section of the population, especially in the lower rungs of society. These measures have come to stay and are bound to be further expanded in the coming years. In that light, this budget appears a welcome effort.