Union Budget by the first lady
FM in 50 years is amidst great expectations in this era of political stability.
For her, all is not hunky dory. GDP growth is projected by the RBI at 7.1% for
the current fiscal. We can set aside for a moment the arguments of Arvind
Subramanian and the controversies surrounding the calculus of GDP.
CEIC data reveals that
consumer confidence grew at 14.8% in March 2019 compared to the earlier quarter
although Business Confidence declined to -1.1% in June 2019 compared to the earlier
quarter of a growth of 0.4%.
The dilemma: household debt
was 10.9% of GDP while external debt was 20.1%. Private consumption declined to
59.3% of its nominal GDP in March 2019 declining by 2 percentage points from
the previous quarter. Gross savings rate was at 30.9% of GDP. With the number
of census towns increasing by 186% in 2011, urbanization of India moved to 31%
space.
World poverty statistics show
that poverty declined to some 70mn in June 2018 from 306mn in 2011. This should
mean that spending money to keep people above poverty line, euphemistic
subsidies should sharply decline. But the Union and several States are releasing
unemployment allowances and loan write-offs along with caste-based dole-outs in
the name of poverty!!
NCAER statistics place the
middle-income population at around 153mn while the lower middle-income
population is at 446.3mn (Krishnan & Hatekar, EPW 2017). The salaried
persons constitute still the dependable taxpayers. There is only a marginal
increase in tax to GDP ratio between 2008 and 2018 from 17.45% to 17.82% while
the GDP and per capita income have doubled during this period. Relentless
efforts are needed against tax havens.
We have seen the way audits
are conducted calling for disqualification of the so far reputed Deloitte, PWC
not excluded. Hiding incomes has become honourable and paying taxes honestly
unwise. This situation unfolds great opportunity for the FM to see new
frontiers in taxation. Direct Tax code is expected to change and it may tilt
the scales.
All the legislators and
Parliamentarians with very few exceptions are billionaires. It is time to start
rationalizing subsidies and incentives for this group. There is also a case for
taxing the rich among farmers – defining them at a threshold of six times to
eight times the salaried. The mechanics are difficult but not impossible. Of
course, most of them being in politics, irrespective of party affiliation, would
engineer ghost rallies against even any modicum of such thought but should be
fought over by a stable government trading off with the benefits for the rest
of the farm sector.
Manufacturing growth is almost
stunted amidst continuously declining credit for the last five years but for
the recent marginal increases. Incentives to manufacturing start-ups should be
more fiscal than financial and rebuilding the eco-system for sustainable
manufacturing growth brooks no delay.
The rural-urban hiatus can be
addressed adequately by encouraging investments in modernizing agriculture and
value addition initiatives in rural areas. Rural industrial enterprise clusters
or Rural Enterprise Zones (like the SEZs) can be the best answer and therefore,
fiscal concessions for such investments will two birds at one shot: achieving
employment and economy growth.
Actual projections for such
fiscal outgoes would be far less than the bonanza that the urban and rich as
also the corporates expect from the FM. In addition, as I have been untiringly
mentioning since 2005, a percentage of share transaction tax in a rising
economy and growing stock market would fetch to the exchequer instantaneous
revenue with no tax administration expenditure.
Government should stop
incurring public debt to save irresponsible lenders with capital infusion just
because it happens to be the owner. Any additional capital from government
should go with stringent conditions on the Chairpersons. Governance improvement
shall be the focus and the RBI should withdraw its executives on all Bank
Boards so that its regulatory rigour can be on par with a food regulator at the
time of introduction of new products.
Women have more courage than
men when it comes to the question of saving a child from a disaster. Madam
Finance Minister should be able to pull it off.
*The Author is an economist
and risk management specialist. The views are personal.
Published on 24th June
2019
