A Sensible And Innovative
The Finance Commission’s recommendation that the States should henceforth get 42 per cent of the taxes collected, imposes severe constraints on the central government’s ability to keep, let alone improve on old spending levels. Many of the social schemes have therefore witnessed a drop in proposed expenditures. The message is clear. If you want decentralisation then the discretion to spend money also moves statewards
There always comes a time when you have to heed Jesus who said:” Render unto Caesar the things that are Caesar’s, and unto God the things that are God’s.” So this time I will render unto the Finance Minister what is due to him. Or better still “give the devil his due.” This Budget is eminently sensible and innovative. His speech was also mercifully brief and to the point. The Budget is an annual exercise that generates great expectations, and this one generated more than the usual for it was the first Budget prepared by the BJP government.
But the expectations of any major changes in how money will be raised and how it will be spent are quite unreal given that a Budget is pretty well set weighed down by past commitments to programs; plan allocations, fixed expenses and interest. Interest takes up almost a quarter of any Budget, while defence too is an imperative, as are salaries and other expenses. But this year we have a new joker in the pack. The Finance Commission’s recommendation that the States should henceforth get 42 per cent of the taxes collected, imposes severe constraints on the central governments ability to keep, let alone improve on old spending levels.
The only other big item is subsidies that take up a good Rs.3.77 lakh crores. This is the big enchilada that those who seek a big bang Budget eye. But the nature of India’s political economy precludes any major slashes. Here every government confronts powerful lobbies. The farm lobbies will not countenance any reduction in the fertilizer subsidy or reduction in procurement, which gives the producer a ready bulk purchaser buying at above the market prices. Similarly subsidised supply of food grains to people subsisting below the poverty line is also a strict No No.
Given these inherent constraints the government has done well to find a way to rein in subsidies by adopting direct transfer of subsidies wherever possible to prevent leakages. For instance, the huge LPG subsidy is already being paid into the consumer’s bank account. The government has done well by resisting the temptation of passing on reducing international oil prices to the consumer.
By stepping up financial inclusion by linking Aadhar to bank accounts, the government has laid a neat roadway for direct transfer of all major subsidies directly. The other advantage is that this will reduce the incidence and potential for corruption and will hopefully have an overall impact on national character. It will also result in savings, but it is too early to quantify it.
The important signs one should seek in a Budget are for directional changes, which will have their impact in the years ahead. One notable focus has been the emphasis on the small farmers and small businessmen. The government has now provided an additional Rs.30, 000 crores for the direct benefit of small farmers by providing funds for private and collective irrigation. The government has also planned to wean away farmers from the urea dependency that has afflicted them. Urea is now giving visibly diminishing returns and in the long term is also poisoning the soil. The Prime Minister has been flagging this issue for sometime now and it finds an important place in this Budget.
The MNREGA scheme to provide guaranteed employment to landless labour and small farmers has been further enhanced by Rs.5000 crore to Rs.40699 crore. But the government proposes to link this with measurable targets such as buildings, roads and canals. It will no longer be just, as the PM put it, digging ditches and trenches without purpose. There can be no quarrel with this, as it will help in creating new and useful rural assets.
Similarly the FM has announced the creation of a Mudra bank, for small businessmen with a corpus of Rs.20,000 crore. The Mudra bank will also provide backstop refinance for micro-credit institutions, but will be for artisans and small businessmen. If it succeeds it will create a whole new opportunity for new entrepreneurs and even if a few handfuls make it big the seeding would have paid off. Jaitely attractively packaged both with the slogan “Banking the unbanked; funding the unfunded.”
India’s IT sector is now worth the equivalent of $153 billion and since it represents an almost 100 per cent value addition, its wealth creation is huge. The government has rightly begun an initial foray into incubator funding with an initial outlay of Rs.1000 crore. Most of incubator funding is by private individuals and institutions, and the entry of the government with its deep pockets will only encourage young and innovative individuals and teams to think big.
In the vital area of major infrastructure the FM has provided for Rs 317,889 crore or almost Rs.70,000 crore more than the previous year. The directional changes here are interesting. The government plans to set up national investment infrastructure fund. It proposes tax-free infrastructure bonds for projects in roads, rail and irrigation. This has the potential to harness tens of thousands of crores, as tax exemption could incentivize people to divert money headed for mattresses into these bonds.
To take the challenge of power shortages headlong the government proposes five new ultra mega power projects of 4000 MW each, and also plans to fast track their commissioning by taking full charge and responsibility for them. In addition it proposes to expeditiously commission the second unit of the Kudankulam nuclear power station.
Nitin Gadkari, fresh from his south of France sojourn on a luxury yatch will have his job cut out as the government has committed itself to build an additional 100,000 kms of roads. The big directional change in infrastructure sector is the proposed corporatisation of nine major Port Trusts. This will enable the Ports to unlock the value of their land and property to build modern and enhanced capacities. India needs this as of yesterday as the inadequacy of port facilities has hobbled economic growth for several decades now. But it will also put the government on the road to a major collision with entrenched trade unions whose internecine ambitions have turned the dockyards and port labour force increasingly less productive and fractious. It will also put the government at loggerheads with the RSS’s BMS labour union affiliate. To me this is a good sign of the government’s determination to improve the long languishing productivity within the economy.
Now I cannot but help crow a bit about the government finally deciding to monetise the tens of thousands of tons of gold within the country, lying as dead investments and often buried deep in backyards. India is the world’s biggest importer of gold and last year we imported as much as 800 tons of gold. The proposed Gold Bond scheme is a great idea and if marketed well, and if not encumbered by too many intrusive questions and conditions, it can yield several hundred billion dollars equivalent for the government to invest in India. The government also offers to introduce a Sovereign Gold Bond scheme that will issue a bond instead of solid gold for the holder to convert at any time and place of choosing for the equivalent weight in gold. Both schemes promise a certain rate of interest also. I have been pressing such schemes to successive governments and I am personally happy to see them fructifying. I don’t really care if Arun Jaitely claims ownership.
We finally see the government show its willingness to crack its whip on those who evade taxes, loot and park their money abroad and benami property by promising stringent punishment for those caught and brought to justice. Seven rigorous years in an Indian prison is a huge punishment and the new provisions will also have hefty financial penalties over and above the seizure of relevant properties. People who ply luxury yatch’s in the Riviera and opulent residences in the great cities of the world should watch out. But it would help if the government signals its determination by nailing a few politicians first.
There are many items such as the abolition of wealth tax and replacing it with a surcharge of two per cent on annual income in excess of Rs.1 crore. This takes the discretionary element out of the hands of the ITO and simplifies matters. You earn, you pay. If you earn and don’t pay, then don’t get caught. Finally there is a little something for every state. Some get IIT’s, others AIIMS’s, and others something else. The government has not forgotten schools either and has set aside Rs.68,000 crore for them including mid-day meals. Our generals will never be happy enough, but defence gets a ten per cent jump from Rs220,000 crore to Rs.247,000 crore. We should now expect a slew of seminars on the security challenges India faces, but they will have to wait for another time for more money.
Am I happy with this Budget?
Yes. Am I ecstatic about it? No.
We can always do better, but we must also factor in what is possible under the circumstances.
By Mohan Guruswamy
A New Deal In Super- Powering India
In his first full Budget since the NDA came to power last May, Finance Minister Arun Jaitley succeeded in managing to combine the pragmatic and political, with a pronounced Modi stamp. An imaginative and deft balance is the hallmark of the new Budget
The Sensex is booming. The frustratingly reticent RBI Governor has agreed to a rate cut and the usually reluctant rating agencies have loudly cheered after the first real Modi Budget was presented on February 28, 2015. The Left and the Congress took some time before they could articulate a response and all that they could spin by the end of the day was that the Modi Budget was “pro-corporate.” But by general consensus this Budget will create a chance for India to fly. World corporate heads are unanimous that India is the emerging hub of new economic architecture of the world. This is the happening place, the continent of hope.
It took only nine months to turn a continent of despair, disillusionment, declining growth and capital flight to become the best destination for investment, a place getting easier to do business. Modi has changed the mood of India. A comparison of the Economic Surveys of 2014 and 2015 will reveal how India has changed. The new Economic Survey is talking of double digit growth, for the first time in India’s history, in the next year and an eight plus growth this year. A year ago India was sliding down to a 4 per cent growth.
In his first full Budget since the NDA came to power last May, Finance Minister Arun Jaitley succeeded in managing to combine the pragmatic and political, with a pronounced Modi stamp. An imaginative and deft balance is the hallmark of the new Budget. Before the Budget was presented the talk was of big bang, surprises and a clear capitalist twist. The Communists and the Congress alike had predicted a Budget hitting the poor hard, a roll back in subsidies, food security, MNREGA, and other populist schemes which they claimed as their innovation. Jaitley Budget made them tongue tied. Not only that the new Budget retained all the schemes but it went further and took a total view of the welfare measures to cover the entire 1.30 billion Indians, not taking them as fragmented vote banks but as a collective whole in a welfare state. The new Budget has, as never before, introduced a number of pension and health schemes targeting the elderly population, The Budget is particularly imaginative and lavish on the weaker sections of the society. Moreover it has something for all.
The Budget has factored in the experiences of the last 23 years of economic liberalism. It has avoided all the vagaries of neo-liberalism. It has incentivized investment and saving while encouraging consumption and ensuring more cash in the pockets of the common man. It is an intelligently woven, minutely envisaged and goal specific Budget. Unlike the earlier UPA budgets there is no fudging, no playing around with bogus statistics. The biggest achievement of this Budget is its honest statement of the state of the economy which is the foundation for any forward movement. Arun Jaitley underlined and stressed this when he said Intellectual Honesty is the bottom line in the preparation of this Budget.
The Finance Minister said, “my proposals lay out the roadmap for accelerating growth, enhancing investment, and passing on the benefit of growth to the common man, woman, youth and child”.
The Budget projected an 8.5 per cent growth, 3.9 per cent fiscal deficit, 14 per cent service tax, with a goal of treating India as a whole as single economic zone creating seamless movement of goods and services, 25 per cent corporate tax in the coming four years with better compliance, 2 percent additional surcharge on income above one crore with scrapping of wealth tax. Jaitley has achieved what some of his predecessors attempted and failed, said one editorial. Slowly but surely, it is not big but it’s full of bang said another. Clearly on global road India aims to hit a global growth milestone. India will be the fastest growing economy in the world if the Budget projections come true.
It will create over a ten million job every year. It promises to build fifty million dwelling units in the coming years to realise the dream of home for all. It plans to hit hard on black money and a stringent law to force people holding cash and property abroad to come clean or face consequences.
The Budget has many innovative steps to encourage competition. It’s bold, inclusive and has taken care of all segments business, education, health, senior citizen, and youth. There was great, unnecessary and orchestrated hype about the Budget, Most of it deliberately created by the corporate lobby. They screamed that this is Modi’s last chance and the only chance, though they know that this was Modi’s first full Budget. The suggestion perhaps was to force government to undertake reckless reform that some free market economists want it to undertake and. That would have politically undermined the mandate Modi got in 2014. Modi did not bite the bullet. He rather threw the googly.
That is the mark of Modi magic. In economics they talk of ‘other things remaining the same.’ Modi inherited an economy in shambles. He did not change even the RBI Governor, the legacy of the UPA paralysis. But under Modi inflation came down to lowest ever in ten years. The crude oil fell saving the country 50 billion dollar in import bills. In the last two years of UPA an estimated 30 billion dollar was invested by Indian companies abroad because of the paralysis in policy and rampant corruption here. Modi cleaned up cobwebs and created an investment climate. Kick started infrastructure projects, there was 8 per cent increase in coal production, an 11 per cent increase in power generation, India got an image boost in the world stage. The creation of hope and aspiration is the biggest game changer. The image of the government that it means business did it all.
It is this attitude, the paradigm shift that this Budget proclaims. There are promises of big ticket infrastructure projects like four mega power plants, big institutions like AIIMS and IITs and IIMs in states, but the overall focus is on delivery not on promises. That is why the incredible agenda of India as a super power looks credible, feasible. The income tax limit could have been raised. There was scope and need for more concessions to the honest tax payer, the salaried middle class. The service tax at 14 per cent rags them. Tax net has to be widened. Service tax is one modern instrument to net the spending types. But this is better achieved by giving big concessions to the salaried class, That apart, Jaitley Budget has satisfied all.
Another significant aspect of the Budget is its faith in the domestic industry. The Budget though eloquent in ease of doing business and attracting FDI, emphasises that ultimately India has to grow on its own steam. Hence the stresss on mobilizing Indian capital. The government has substantially increased capital expenditure indicating that the primary source of investment and job creation is in the public sector. The coal bloc which the previous government scandalized as of no value or zero loss when it encouraged crony capitalism has under Modi become a big money spinner. This is substantially adding to the kitty of poorer states. Making states the basic units of growth, inspiring them to compete on attract investment the Budget has redefined the whole concept of planning. It has sent out the message that Budget is also a work in progress. That it maintains the momentum, pace and élan is the moot point. A work well done. No scope for honest disagreement.
By R Balashankar
Budget 2015: Achhe Din For Whom?
The Union Budget presented by the National Democratic Alliance (NDA) is considered to be a new chapter of growth in the Indian history. But the question haunting many is—will it bring achhe din for the common man or corporates?
Many eyebrows were raised when the Finance Minister Arun Jaitley said that the middle class, which constitutes a major chunk of population in India, has to fend for itself. For the middle class the message of the Union Budget was clear that it has to brace itself for a steady drain of pennies from its pocket.
This is due to the increased service tax to 14 per cent from the current 12.36 per cent. This means that the revised rate, which will come into effect from a date to be notified, will make costlier a host of almost everything. From air travel to eating out at restaurants and to paying mobile and internet bills, people have to pay more. Similarly, visiting beauty parlours, stay in hotels, dry cleaning of clothes, purchasing of branded clothes, cable and DTH services, courier service, credit and debit card related services, asset management and insurance, the middle class has to bear the brunt of this levied tax.
The Budget has also failed to fulfil the expectations of the farmers. Many farmer leaders criticised the Budget as having “failed to give the much-needed healing touch” to the critical agriculture sector, which is suffering from acute crises. Kishore Tiwari, President, Vidarbha Jan Andolan Samiti, said that there were no announcements made in this Budget to fulfil Prime Minister Narendra Modi’s pre-poll promise of farm loan waivers and giving minimum support prices as per a proposed formula of investment plus 50 per cent returns. Tiwari reiterated the fact that the BJP’s pre-election promises were turning out to be kisan jumlas (empty poll promises) as there was no budgetary provision or plans to address the acute agrarian crisis with focus on credits, cost and crop pricing issues or measures to stop farmers suicides. “More so since this year, Maharashtra has officially declared that 23,811 of 39,453, or 60 per cent villages in the State, face the severest drought of the century, hitting more than 90 lakh farmers…The ruling NDA has sidelined the rural and agrarian crisis from its priority list, worsening the already bad conditions,” he added.
The direct beneficiaries of this Budget, as expressed by many, are the corporates. This is due to the Budget proposals that will reduce direct taxes by Rs.8,315 crore benefiting the rich and increase the burden on people through indirect tax hikes of Rs.23,383 crore. In addition to direct tax benefit, for India’s rich, wealth tax has been abolished, corporate tax planned to reduce from 30 to 25 per cent, greater concessions and access to FDI, and FIIs absolved of capital gains tax and minimum alternate tax (MAT). The implementation of General Anti Avoidance Rules of Taxation (GAAR), which was meant to curb tax avoidance of the MNCs, has been postponed.
Another major drawback, according to many critics, is limiting the fiscal deficit to 3.9 per cent of the GDP which will axe essential social expenditures. Similarly, Budget allocation for women (gender Budget) has been reduced from Rs. 90,000 crore last year to Rs. 80,000 crore. There is a huge shortfall for SC Sub-plan as the allocation went down from Rs. 43,000 crore to Rs. 30,000 crore. Tribal Sub-Plan’s funds were also reduced from Rs. 26,000 crore to Rs. 19,000 crore. Integrated Child Development Scheme (ICDS) was not spared either. From last year, its allocation has been halved from over Rs.16,000 crore to just Rs. 8,000 crore. Funds for Health and Family Welfare has come down from Rs.35,163 crore last year to Rs.29,653 crore. And for Housing and Urban Poverty Alleviation, the allocation has come down from Rs.6,008 crore to Rs. 5,634 crore.
Perhaps the worst victim of this Budget is the health sector. It is known that public spending on health is lower in India than in almost any other country in the world, as a proportion of GDP. This year too, it may go down not only as a proportion of GDP but also in monetary terms. Incidentally, in the previous Budget, Finance Minister Arun Jaitley announced a grand plan for “universal health assurance”. There is not a word of it in this Budget speech. Instead, the Minister now promises a new grand plan for “universal social security” but the specifics, timelines and budgetary allocation is still not decided.
Criticising the Budget Sitaram Yechury, CPI(M) wrote in an article published in a leading newspaper: “The Modi government’s Budget this time is, thus, a more aggressive variant of Dr. Manmohan Singh’s reforms. They follow the same logic that our economic development is only possible by attracting larger quantum of investments through big concessions to foreign and domestic Capital. However, this alone cannot automatically lead to higher employment and growth. This can only happen if the purchasing power of our people grows to be able to purchase any increased production. With global commerce shrinking due to continued economic slowdown, our exports will remain low. People’s purchasing power will now further contract this Budget. “Instead of expanding concessions amounting to lakhs of crores of rupees for attracting investments, which, in any case, cannot result in growth and improve people’s welfare, if these amounts were utilised for substantially increasing public investment to build our much needed economic and social infrastructure, both greater growth and equity could have been achieved,” he added.
Interestingly, Modi government decision on black money has also evoked strong reactions from the Opposition. In the Budget, Jaitley has said that the concealment of income and assets and evasion of tax in relation to foreign assets will be prosecutable with punishment of rigorous imprisonment (RI) up to 10 years, and offenders will not be permitted to approach the Settlement Commission; those caught concealing income and assets will be penalised at 300 per cent of the tax due. And not filing returns or inadequately disclosing foreign assets in those returns could result in seven years’ RI.
Manish Tewari, senior Congress leader and Supreme Court lawyer who deals in tax matters, said, “It’s simply the re-introduction of FERA. It is, in fact, far more draconian than FERA. It is going to put a huge amount of power in the hands of the Enforcement Directorate, which is really not known for its outstanding probity. But the fundamental question is: If you are sincere in your intention to unearth black money, why this distinction between black money stashed abroad and in India?”
Earlier as well the NDA government with Atal Bihari Vajpayee at its helm had launched Prevention of Terrorism Act (POTA) which unfortunately became an instrument of misuse and human rights violations by the authorities. It is a major concern that the new laws outlined in the Budget to fight black money threaten to put similar unbridled powers in the hands of enforcement agencies. Modi, who focussed, before and after the general elections, on delivering the much-needed development and economic growth, saw a decline in the numbers of his supporters due to unsatisfactory pace of economic reforms. The 2015 Budget was supposed to send a strong message to the international community that amid economic slowdowns in China, Russia, Brazil, and South Africa, India was the available option. Only time will tell whether the Budget was successful in attaining this position.
By Rohan Pal
Main Highlights Of Union Budget 2015
- No Change in Tax Slabs and 80C Limit
- Tax Benefits on Income upto Rs. 4.42 Lakh.
- Service Tax Rate Increased to 14% from 12.36%
- Excise Duty hiked to 12.5%
- Transport Allowance Limit increased to Rs. 1600 per Month
- Deduction for Contribution to Pension Fund- Limit increased to Rs. 1.50 lakh
- Limit U/s. 80D raised to Rs. 25000 from existing Rs. 15000/- Further increase for Senior and Super Citizens
- Investment in Sukanya Samridhi Scheme will be fully exempted from tax
- Specified Domestic Transaction Limit proposed to increase to 20 Crore from 5 Crore.
- Retrospective tax provisions will be avoided.
- Tax on Royalty from Technical Services cut to 10%
- Reduced Custom Duty on 22 Items.
- Wealth Tax act abolished and 2% Surcharge imposed on Super Rich having Income above 1 Crore – Additional 9000 crore expected
- GAAR to be resolved in 2 Years- Implementation of GAAR deferred by 2 Years. To be applied from April 2017
- Law to Curb Black Money in Property Transactions- PAN Mandatory for all Transactions above Rs. 1 Lakh
- More Power Under Fema Act to Fight Black Money
- New law to deal with Black Money Stashed outside India Up to 10 Year imprisonment for Black Money, Concealment of Income or Assets. Non Filing of Income Tax Return is proposed to make Punishable with Imprisonment
- Fm proposes new law for dealing with Black Money
- FM to Reduce Corporate tax rate from 30 to 25% over next 4 years.
- Cut in corporate tax rates is accompanied by cut in Tax Exemption
- Gross Tax Receipt Receipt Rs. 14.49 Lakh crore
- Employee’s contribution to EPF below an income threshold will be optional without reducing employer’s contribution.
- FM proposes to do away with different types of foreign investment and replace them with composite caps.
- 150 countries to be included in Visa for arrival facility:
- Amendment in SEBI and RBI Laws Proposed to merge commodities regulator with SEBI
- Vision of a building direct regime which will be internationally competitive
- Tax free infra bonds for road, rail and irrigation projects.
- GST to be put in place by April 1, 2016
- Govt allocates Rs 346.99 billion for NREGA scheme in Budget 2015 to insure no one is poor and without job
- Bankruptcy law reform has been identified as a key to ease of doing business. Bring comprehensive Bankruptcy code in 2015-16.
- Rs 5.20 lakh crore in taxes to go to states in 2015-16