Sachchidanand Shukla
The budget has to be seen in the context of the stagflation-like backdrop of the Indian economy and attendant expectations. There were expectations that the Budget will boost growth by trying to spur demand by either spending more through higher allocations on the rural sector or put money into people’s pockets by way of income tax rate cuts.
There was an expectation that the government will address the decline in private investment. This would have required addressing issues such as rule of law, the judiciary, tax administration, and over-regulation.
There were hopes that there would be industry specific interventions. For example, the Telecom sector is reeling under the impact of regulatory imposts and competition. In power, the discoms remain in a spot of bother. There was an expectation on a scrappage policy for old vehicles in Autos. The Real Estate and the NBFC sectors were in need of enhanced liquidity and resolution of solvency concerns.
Now let us see what the government has tried to do.
First up, it has used the FRBM escape clause and let go of the fiscal deficit target of 3.3 percent of GDP. The deficit has gone up to 3.8 percent for FY20. However, the government has chosen to go ahead with a revised fiscal glide-path and lower the fiscal deficit target to 3.5 percent, 3.3 percent & 3.1 percent for FY21, FY22 & FY23 respectively.
The budget has re-emphasised its focus on Agriculture, Rural sector and soft infrastructure (health & education).
For agriculture, the credit target is up Rs 3 lakh crore. The Budget has tried to incentivise states on land leasing, livestock, contract farming, a focus on water-stressed districts and emphasis on agri supply chains through warehouses and storage. These are medium-term positives, but progress must be monitored.
There is a focus on soft infrastructure, but allocations remain modest for both health & education. For e.g. allocation for healthcare at Rs 65,000 crore is up by only 3.8 percent YoY and the allocation for education at Rs 99,311 crore is up by just 4.6 percent YoY.
The budget has also tried to boost household incomes in the lower income tax brackets. Moving up of tax slabs would boost disposable incomes of around 42 million individuals in the lower tax slabs (with incomes less than Rs 15 lakh). This could spur consumption of small ticket size items.
The setting up of Citizen’s Tax Charter and The National Logistics policy – single e-logistics market to sort out state vs centre issues etc -- along with a push for Digital Infra connectivity and a common entrance test for non-gazetted government officials and public sector banks are positive moves.
However, there are some notes that are jarring. The government has introduced 5 new income tax slabs and reduced the tax rate for different slabs for an individual income of up to Rs 15 lakh per annum, if a taxpayer opts for foregoing exemptions and deductions. This will be optional and the taxpayers will be given the choice to either remain in the old regime with exemptions and deductions or opt for the new reduced tax rate without those exemptions. The creation of a dual tax structure through optionality as well as multiple slabs seems to complicate rather than simplify the tax structure. Also, this dilutes the potential savings in the hands of households. Similarly, the abolition of dividend distribution tax (DDT) for companies but making it taxable in the hands of the individual taxpayer will result in higher tax incidence.
There is also a significant jump in customs duties on goods & appliances such as kitchenware, utensils, electrical appliances, shavers, toasters, footwear, stationary & toys etc. This is clearly to protect domestic players. But the flipside is that it could hurt household budgets.
As for the numbers, the Budget relies heavily on non-tax receipts. The disinvestment target at Rs 2.1 lakh crore relies heavily on the spill over from FY20 and stake sale in LIC and IDBI Bank. Importantly, non-tax revenues (ex-divestment) will have to contend with lack of one-offs from RBI and lean on spectrum auctions, where companies are reeling under fiscal imposts and competition.
Thus, the government seems to have chosen to go for an incremental Budget as against the expectation of a Big Bang one. This implies that the growth recovery will be protracted with tepid support from the fiscal and monetary side.
Sachchidanand Shukla is Chief economist, Mahindra Group. Views are personal.
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