At a time when the economy is fighting a huge demand slump, Sitharaman should have put money in the hands of people to stimulate demand. That was missing in the budget.
In Parliament, on Saturday, as the Finance minister rose to unveil the mystery hidden beneath the now-famous ‘bahi khata’, all eyes were on the television screens. Undoubtedly, Nirmala Sitharaman had an arduous task at hand. She had already gifted the corporates with a tax bonanza long before the Budget; so it was only natural for the middle class to expect something similar .
Sitharaman’s initial comments pointed towards an aspirational, pro-middle class budget. After all, this was supposed to be the one big budget wherein the FM had to deliver the ‘feel good factor’ to shake off the mounting pessimism on the Indian economy. The moment of excitement arrived, in an otherwise mundane speech, when the FM announced income tax cuts, rather a revision of the existing tax slabs--the part what the majority Indians were waiting for.
Sitharaman announced sharp reductions in tax rates for those earning upto Rs15 lakhs a year, but with one condition. Tax sops were only for those who forgo the exemptions and deductions. Calculators worked endlessly to unmask the mystery. Soon, it became apparent that under the new tax regime was quite complicated, and in many cases, you would end up paying more tax depending on the exemptions you chose to forgo.
Most tax experts are of the view that those eligible for exemptions, should stay with it. This wasn’t what was expected out of Sitharaman’s bahi khata budget. This wasn’t what it meant to be in the midst of a painful economic slowdown. As the initial excitement died down , smiles gave way to scowls. The big dhamaka that the middle-class was anxiously waiting for wasn’t happening.
For those in the high income bracket too, there was no cheer. On the contrary, there was bad news for them in the form of taxation on employees' provident fund (EPF), National Pension System (NPS) and superannuation fund. Beyond Rs 7.5 lakh, employer contribution will be taxed beginning 1 April.
What about rural India?
The budget did't give enough to stimulate the rural demand. Sitharaman cut the allocation for MGNREGA scheme by 13.4 percent to Rs 61,500 crore, lower than last year's revised estimates of Rs 71,002 crore. Remember, in a slowing economy, this scheme is a major social security net for the unemployed in rural India. It assured them a minimum of 100 days work through the year. Also, Sitharaman cut allocations in the Union Budget for various flagship schemes under the Department of Rural Development to Rs 1.20 lakh crore for the year 2020-21 from Rs 1.22 lakh crore in 2019-20.
What was given to farmers? Of the Rs2.83 lakh crore allocated, Rs1.73 lakh crore will go to rural development and panchayati raj sectors. Of the remaining, about half will go for fertilizer subsidy. The government has announced Rs 15 lakh crore fresh agri credit target for 2020-21. But, how much of it will benefit the small farmers needs to be seen. .
The budget had enough to pacify the corporates. For instance, after a big corporate tax cut, the burden of the dividend distribution tax has been transferred from the companies to the individuals. The Budget has not done what it was supposed to do to revive demand--to put more money in the kitty of rural households. All this when the economic growth is expected to fall to the lowest in 11 years and unemployment at 45-year high. Some of the Budget’s priorities are questionable. What explanation would one could give for cutting the custom duty on pure-bred breeding horses while duties on butter ghee, butter oil, edible oils, peanut butter were hiked?
Budget has projected a nominal GDP growth of 10 percent for 2020-21, and a tax revenue growth of 12 percent. This is unrealistic given the significant corporate tax cuts and in the backdrop of a muted consumer demand. Companies are unlikely to invest in capacity expansion in a subdued market. The government is betting big on disinvestment income, including that from the proposed stake sale in Life Insurance Corporation of India. Sitharaman should have slashed the personal income tax in real sense instead of creating an illusion and making it even more complex. The Indian middle-class deserved a better budget, not a tax googly.