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Union Budget 2017- It says, letís continue life the way we live

For years IE has been lamenting over the incredibly small percentage of population filing income tax returns and fewer still paying personal income tax. It is something sad: for a population of 126 crore, just a little over a crore should pay income tax. We have also been contrasting this with the visible signs of prosperity in terms of the boom in the sales of automobiles, housing property, foreign travel, etc. We have been suggesting progressive targeting to take IT payees to at least 30 per cent of the population over three years.

Union Budget 2017- It says, letís  continue life  the way  we live

 

So rich, so comprehensive...


Long lingering concerns on the economy relate to the falling rate of investment; rising stock of public debt and consequent debt servicing which increasingly eats up the revenues, leaving less for investment; the ever growing proportion of NPA to total loans in the banking sector is another drag in the economy.  
The Economic Survey acknowledged that demonetisation led to a temporary slowdown in GDP as cash-intensive sectors such as agriculture, real estate and jewelry were affected more than others. Further, because of the rising uncertainty, firms and households postponed investment decisions, aside from cutting consumption, which is 60 per cent of GDP. The Survey revised downwards the official growth rate for 2016-17 to 7.1 per cent. 
For 2017-18 also the growth rate is revised downwards: it will be in the range of 6.75 per cent to 7.5 per cent.  The IMF forecast is 7.2 per cent. 

 

Fiscal deficit...


The Survey asserts that countercyclical measures (fiscal deficits during recession and fiscal surplus in good times) adopted by advanced nations are not applicable to India and the focus should be on containing debt. It is not clear whether because of RBI’s advice against bigger fiscal deficit in the wake of rising oil price and high inflationary potential, the Survey shifted gears from deficit to public debt.

 

Banking woes...


The non-performing loans or assets (NPA) of banks are 12 per cent of gross advances. The Survey urges to solve the problem since “the consequent squeeze of banks has led them to slow credit growth to crucial sectors-especially to industry and medium and small scale enterprises.”
The Survey suggests a centralized Public Sector Asset Rehabilitation Agency (PARA) to look at the “largest, most difficult cases, and make politically tough decisions to reduce debt.”

 

Regional inequality...  


The Survey points out that state or regional dispersion continues to be striking unlike China. Although India as whole performed well during 2004-14, some states have lagged. Thus there has been a lack of convergence. There are two sets of economic indicators: income and consumption, and health/demographic indicators. Convergence means that a state that starts off at low performance levels on an outcome of importance, say the level of income or consumption, should grow relatively faster over time, improving its performance, so that it catches up with states which had better starting points.
Referring to convergence in real per capita GDP during 2004-14, the Survey says that while incomes converged for provinces in China, incomes diverged for states in India. The same trend of divergence is observed in the case of convergence in real per capita consumption for states in India. Thus, despite rapid growth on average “there is a sign of growing regional inequality among the Indian states.” This needs to be addressed early.

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Inflation contained...


The Survey observes inflation is likely to be well below the Reserve Bank of India’s target of 5 per cent in the current fiscal thanks to demonetization. Since credit growth has been poor, the Survey indicates room for an easy money policy. In the same breath, the Survey notes the low oil price environment of last few years would not be repeated in 2017. 
On wholesale-price front, a reversal trend was observed from a trough of negative 5.1 per cent in August 2015 to 3.4 per cent at the end of December 2016 due to rising crude prices. There is possibility of “sharp rise in prices in 2017-18 that may narrow the scope for monetary easing .” 

 

Acche Din Ayenge 


In the wake of “the most destructive tsunami of monetization,” the Survey offers some solace to the poor by way of a Universal Basic Income (UBI). However, it points out to a “number of implementation challenges: it should not become an add on to the current anti-poverty and social programs.”

 

Unrestrained Debts 


For long IE has been cautioning on the unrestrained increase in public debt from 1980. This eats increasing amounts of revenue through debt servicing - interest payments and repayment of a portion of debt. 
Public debt has ballooned from a few thousand crores of rupees in 1980 to close to Rs 69 lakh crore today. The Budget estimates borrowing of  Rs 5.35 lakh crore to bridge the gap 
between expenditure and receipts. This means higher cost 
of debt servicing. India, well - poised to become the FIFTH LARGEST ECONOMY next year should address this weak aspect of its fiscal picture. 

A tax non-compliance society...


We are happy over the emphasis made by

Finance Minister Arun Jaitley on expanding the income tax base and correspondingly correcting the very low tax-GDP ratio. Look his graphic description: 

•As against estimated 4.2 crore persons engaged in organised sector employment, the number of individuals filing return for salary income are only 1.74 crore.  

•As against 5.6 crore informal sector individual enterprises and firms doing small business in India, the number of returns filed by this 

category is only 1.81 crore.  

•Out of the 13.94 lakh companies registered in India up to 31 March 2014, 5.97 lakh companies have filed their returns for Assessment Year 2016-17. Of these, as many as 2.76 lakh companies have shown losses or zero income.  2.85 lakh companies have shown profit before tax of less than Rs 1 crore.  

•Only 7781 companies have profit before tax of more than Rs 10 crore.

•Among the 3.7 crore individuals who filed the tax returns in 2015-16, 99 lakh show income below the exemption limit of Rs 2.5 lakh p.a., 1.95 crore show income between Rs 2.5 lakh and Rs 5 lakh, 52 lakh show income between Rs 5 lakh and Rs 10 lakh and only 24 lakh people show income above Rs 10 lakh.  

•Of the 76 lakh individual assessees who declare income above Rs 5 lakh, 56 lakh are in the salaried class. 

•The number of people showing income more than Rs 50 lakh in the entire country is only 1.72 lakh.  We can contrast this with the fact that in the last five years, more than 1.25 crore cars have been sold and number of Indian citizens who flew abroad, either for business or tourism, was 2 crore in 2015.  

From these figures we can conclude that we are a tax non-compliant society.  The predominance of cash in the economy makes it possible for people to evade their taxes.  When too many people evade taxes, the burden of their share falls on those who are honest and compliant.

A wonderful data analytics!

 

Eradicating black money...


The NDA government has been attempting to eradicate the menace of black money. Demonetisation is among the efforts continued in this direction. Digital technology now available, would help in keeping track of the old Rs 500 and Rs 1000 notes deposited into banks. The Finance Minister referred to around 18 lakh such deposits showing unusually large amounts: “deposits of more than Rs 80 lakh were made in 1.48 lakh accounts with average deposit size of Rs 3.31 crore. Such large deposits will be scrutinised.” The Finance Minister expressed the hope that this mine of data will help expand the tax net as well as increase the revenues. 

 

Revenues buoyant and deficit to target


Jaitley has the reason to feel happy over fiscal performance through the current year that helped conform to the fiscal deficit targeted at 3.5 per cent of GDP. The bonanza of low crude and petroleum product prices and the prudent upward revision of excise duties on products, helped record a huge jump in excise duty collections, of around Rs 99,000 crore, over the previous year. Due to sluggish growth in manufacturing, estimate of corporation tax, customs and service tax growth has been modest but income tax revenue is estimated to grow around a healthy 25 per cent.

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