Economic
Highlights
New Delhi, 8 July 2019
Moving Away From Nehru
SWADESHI SAVING TO FUND GOVT
By Shivaji Sarkar
The Modi-led NDA-II’s budget has changed the focus to peg
India’s finances on village and farms, clearly a visible shift from the
Nehruvian economy of promoting large public sector entities.
In its place the Modi 2.0 Government wants the private
sector to be a driver in infrastructure or overall economy. This is aimed at
building a larger $3 trillion economy in the immediate future and $5 trillion
in the course of time. Finance Minister Nirmala Sitharaman asserted, “In
purchasing power parity, we are in fact, the third largest economy already,
next to China and the US”.
Certainly, this sounds good as Sitharaman’s Rs 27.86 lakh
crores budget has interesting features. Besides, it is ambitious and spread
widely.
Her positive is looking for the soul of India, which she
says, “lives in its villages”. So the economy is planned to get a boost with
empowerment of villagers, women and farmers. It sees farms and increasing rural
income as the pivot.
The Pradhan Mantri Awas Yojana Gramin (PMAY-G), Pradhan Mantri
Gram Sadak Yojana (PMGSY), Bharatmala, Sagarmala and Udaan are designed to be
engines of connectivity of rural and urban --- now called ‘rurban’ ---
growth. The 1.25 lakh km new roads would entail Rs 80,000 crores investment.
The Scheme for Upgradation and Regeneration of Traditional
Industries (SURTI) will create 100 clusters for 50,000 artisans. The ASPIRE for
promotion of technology business incubators (TBI) in rural industry proposes
another 100 clusters to develop 75,000 skilled entrepreneurs in the agro-rural
industry sectors.
This is in addition to 10,000 new farmer producer
organsations (FPO), apparently with corporate interface, to ensure economies of
scale for farmers over the next five years.
The Prime Minister’s Digital Saksharata, Jal Shakti in
256 districts, e-nam, APMC, Swachha Bharat for rural solid waste management are
designed to spur rural growth.
Many of these would be a bridge between urban and rural
growth and are backed by many programmes for the industry. This is likely to
create demand and spur growth of industry and allied sectors.
Fine. But the Finance Minister has thrown a spanner. Her
proposal to levy additional excise duty, road and other cess of Rs 2.50 on
petrol and diesel will be inflationary as it would shoot up transport expenses
at all levels. Truck, bus and other transport fares will shoot up. This may
thaw the economy.
Already cess and duties are high on fuel and tolls are at
atrocious rates. This calls for a relook and withdrawal of the proposal to keep
the economy on track.
Another act is the raising of customs duty on gold, already
high at 10% it has now been increased to 12.5%. Presumably, gold is mistakenly
considered an item of consumption by the rich. But no marriage in a poor or
rural household is complete without purchasing gold.
This apart, those suggesting such levies forget that
NDA-I of Atal Behari Vajpayee had taken the prudent decision of having zero
duty on gold import to stop smuggling. Higher duties are happy indicators for
the smugglers, who have links with international gun runners, drug syndicates and
terrorist organisations.
Though the aim is to raise revenue, it might end up
increasing surveillance at multiple sectors causing a revenue loss. Ideally,
this needs to be rolled back as the losses outweigh gains.
Similarly, TDS on cash withdrawals of over Rs 1 crore,
not a large sum for even small businesses might cause a slowdown. The Government
should not be in a hurry to digitalise the economy as cash is the fastest
transaction method. Linking it to black money, simply meaning untaxed is a misnomer.
Let the cash lubricate and speed up the economy.
Digitalisation would be a normal an automatic process. Also, there are
apprehensions for digitalization too as many Aadhar-linked accounts are stated
to have been defrauded. The Government needs to go slow and withdraw such
strange rules that make dealings and tax filing cumbersome.
It was expected that the Finance Minister would say some
words on abolishing income-tax. Instead increasing rates to 47% for an income
over Rs 5 crores does not bode well.
Undoubtedly, high taxes reduce disposable income and are a
dampener for the people to consume. Sitharaman still has time to review this.
The Indian economy needs simplicity in tax
administration. The more of rigmarole there is more the complication for the
economy. The NDA-I had started on a good note. The FM should continue that.
Additionally, those who have been let off up to Rs 5 lakh
income should be allowed not to file tax returns. This only burdens the tax
office with more clutter and little benefit.
Another correction in the system should be to allow
taxes, as of now, to be calculated at Rs 5 lakh instead of forcing those who
earn a rupee above it to pay from the base rate of Rs 2.5 lakh. This is a dichotomy
and is not a good sign for tax administration. This drains a taxpayer of a huge
sum to feed an oversized Government at the cost of comfort to the economy.
Pertinently, the sooner, the Finance Minister does this,
would be better for all --- taxpayers, tax administrators and the market.
Politically too it would soothe voters, who have in
Sitharaman’s opening paragraph, “overwhelmingly supported the Modi Government
of putting the nation first”. A small gift would have larger dividend.
Moreover, taxing bank deposits does not suit the welfare
nature of the Modi Government. It might give small revenues but it causes
immense hardship to those who save.
The Finance Minister stated that savings have to be
encouraged to boost the economy. The TDS and low interest rates dampen the
enthusiasm of savers. Time for Sitharaman’s words to match her deeds. It’s a
necessity not only for savers but also for
a nation that is pining for funds.
Arguably, if savings are taken care of, the Government
would not have to look for borrowings abroad as the Finance Minister’s speech
indicated to spur growth and fiscal management. This swadeshi move would
make easy finance available to the Government and save foreign exchange.
Importantly, Sitharaman must do some rework. It would
contain inflation which after this budget is likely to rise to 5%. For a $5
trillion economy in nine years, it would require a growth rate of at least 11%
not 8% as the Economic Survey indicated.
With a little vision, Budget 2019-20 can become the real
growth propeller and deviate from the residues of Nehruvian economy. ---- INFA
(Copyright, India News & Feature
Alliance)
|