Budget 2019 must be big and bold: Nirmala Sitharaman must go for serious capital infusion and tangible tax breaks
It was just last week that a top source from the BJP revealed to me that Budget 2019 would aim to infuse Rs 1,00,000 crore into the Indian economy — while that is just source-based information, it is hardly unbelievable.
The Indian economy needs a proper revival. It is now in the doldrums for all practical purposes. And that proposed infusion, honestly, is not a very big amount.
A 5.8% growth in the January to March period makes it the slowest in the past five years. Unemployment at a 45-year-high is also alarming. Many entrepreneurs tell me that there is no liquidity in the market post the non-banking finance companies (NBFCs) crisis. Consumption is down post-demonetisation. In a scenario like this, capital infusion can be a way for short-term revival. Hence, there is a possibility of that kind of infusion coming from the Finance Ministry. There can't be more as fiscal deficit targets can go awry.
So, a genuine revival currently looks a far cry.
The BJP's idea of employment revolves around 'self employment' — that sounds great on paper, but start-up entrepreneurs ask, where is the ease of doing business? Why is 35% of their time on average going into compliances and complicated Goods and Services Tax (GST) structures? Why is the angel seed capital double taxed? Why is the grant through Small Industries Development Bank of India (SIDBI) for start-up India a matching fund? Where are the genuine beneficiaries of the start-up India programme? Why is there a tax exemption for start-ups for the first three years of inception, when it's common knowledge that the break-even point is achieved only after a year-long gestation?
Hence, other sources providing jobs becomes key as start-ups are certainly not painting a rosy picture, given the impediments. Let's face it, Budget 2019 can't fix jobs. But what it can do is take Make in India from a paper promise to reality and boost consumption for economic recalibration. It can take the economy on a path of slow and steady economic revival.
Achieving a target of a $5 trillion economy by 2022, however, sounds like me wanting to fly to work to avoid traffic jams on the road.
As for direct taxes, populist measures call for revising tax slabs and lowering the burden on taxes for salaried professionals — and why not?
The salaried class is overburdened with taxation and there has been a genuine cry for help. Exemption limit increases could help. Honestly, the government can do a bit to ensure they have more discretionary spending and help the salaried class. And it won't hurt them much. Overall, once the direct taxation burden is reduced, more people tend to join the tax net and compliance increases. That may also fulfil PM Modi's dream of bringing Rs 10 crore people under the tax net.
However, the GST Council decides the indirect tax net. Hence, direct taxation is one place where the Finance Ministry can really help. As far as GST is concerned, its creases need ironing, compliance needs simplification and classification of goods under various categories needs a relook as the Small and Medium Enterprises (SMEs) are complaining of these woes. This leaves the common citizen currently with frayed nerves which need calming. Even corporates want to see the corporate tax rates reduced, so that the pricing benefits due to lower input costs can be transferred to the end consumer and give a boost to supply and demand.
Talking about taxes, the long-term capital gains tax figure increase would mean a negative market sentiment, which the government would look to avoid currently.
The agrarian economy is not doing well either. Disguised employment that once had excess hands working on farms has run its course — people are now looking for jobs in allied sectors, given the minimum support price (MSP) promise looks great on paper. We did a ground report from Tamil Nadu and Madhya Pradesh and farmers are still miffed with not getting any bang for their buck. Hence, this needs a quick fix — else, India would start slowing, perhaps even becoming an import dependent economy, which is never good news.
Rising capital cost is another area of concern post-the NBFC crisis. The Reserve Bank of India (RBI) may announce rate cuts by 25 basis points in terms of the repo rate which they did, but did banks really pass these on to the end consumer? The benefit is not visible on the ground.
We stare at a very complicated scenario.
On the one hand, a boost in infra, rural and agrarian economy is a must — on the other hand, that would leave no room for fiscal prudence. That said, which one does the government find more important to deal with on a war footing? The jury is out on that till July 5!
For a government that has been bold in taking steps like demonetisation, more bold moves will not surprise anyone. At this point, they can help.