The focus of the Budget towards Digital India could see us having electronic voting in 2024, doing away with huge queues and heavy deployment of security staff for general elections.
The Economic Survey, though marked a significant departure from the past to move to a $5trillion economy, did not find its reflection in the Budget speech in any of the sectors, while targeting $3 trillion during the current year, that leaves just nine months to attain the same.
Amidst reducing consumer and business confidence and increasing external debt at 20.1% and household debt at 10.9%, and gross savings rate of 30.9% of the GDP as revealed by CEIC data, the Budget demanded much more than announced. Allocation for Smart Cities in the context of increasing urbanisation too saw only a marginal hike. Expenditure figures reveal interest and administrative expenses constitute as high as 43.3% of the total expenditure.
One welcome feature of the Budget is the recognition that the rich can’t get away with the bounties. Although it is just an increase in surcharge for individuals with incomes of over Rs 2 crore, it is only the intent and not so much revenue that gets recognised. The 2% tax on cash transactions of over Rs 1 crore for B2B and the untouched slabs at the upper end of the income bracket should be seen as the beginning of a change in the direct tax regime. Not much can be read about the Direct Tax Code that the citizens have been waiting for long.
Women and self-help groups have been recognised as economic citizens for the growing economy. Their share in the GDP is set to move up with the trust imposed in them by the Finance Minister through the interest subvention scheme, loan up to Rs 1 lakh for one person in the SHG and Rs 5,000 loan for every verified woman Jan Dhan account holder.
Big Talk, Small Allocation
Jal Jivan Mission with a promise of drinking water for all rural households – a replica of Mission Bhagiratha of Telangana, a World Bank acclaimed project – has been announced. But the allocation for the scheme under the National Rural Drinking Water Mission is just Rs 10,001 crore for the entire country!!
Social Stock Exchange is a novel initiative that will be a game changer if the logistics are well-built. The Finance Minister modified the Security Transaction Tax only to the difference between settlement and strike price in case of exercise of options. Had she raised the STT rate to at least 1%, she would have got direct revenue without tax administration expenditure into the treasury simultaneously reducing the Corporate Tax to 20% for corporates with a turnover of over Rs 400 crore. Markets would have responded more favourably than the continuous rallying down witnessed for a week after the Budget.
Investment firms are putting their best efforts to convince the Finance Minister over the buy-back arrangements that the Indian firms engage themselves in, to avoid the Dividend Distribution Tax. Foreign portfolio investors and FDIs did not view the tax breaks as more welcoming than the rest of Asia, particularly Malaysia, Vietnam, and Indonesia. The FDI in India was just 1.5% of the GDP as at the end of March 2019.
In fact, if we can plug the leakages and improve the eco-system, even domestic resources could be mobilised towards the ambitious infrastructure projects in the railways, airways, public transport and waterways. Relying too much on the private sector for such projects with not-so-attractive return in the medium term could only serve the objective of throwing the blame on the private sector for failure on this front at a future date.
Positives for MSMEs
The MSME sector has been left more for the Sinha Committee to take effect. Some welcoming announcements are:
• Pradhan Mantri Karam Yogi Maandhan Scheme
• Pension benefits to about three crore retail traders and small shopkeepers with an annual turnover of less than Rs 1.5 crore
• Enrolment to be kept simple, requiring only Aadhaar, bank account and a self-declaration
• Rs 350 crore allocated for FY 2019-20 for 2% interest subvention (on fresh or incremental loans) to all GST-registered MSMEs, under the Interest Subvention Scheme for MSMEs
• Payment platform for MSMEs to be created to enable filing of bills and payment thereof, to eliminate delays in government payments
• Agri entrepreneurs and rural enterprises covering bamboo, khadi and honey clusters, 100 new clusters covering 50,000 artisans and 100 business incubators covering 75,000 entrepreneurs under ASPIRE would be a good start to boost rural entrepreneurship
There have been no provisions either for Fund of Funds (Rs 15,000 crore) or for the Stressed Asset Fund of Rs 5,000 crore mentioned in the MSME report. It has also ignored the call for restructuring the CGTMSE. Recognised inefficient functioning of Sidbi and the new role of mentoring, counselling, advisory and non-financial services to the MSMEs assigned by the Committee have also not been even cursorily mentioned. Sidbi begs organisational restructuring sooner than later in the interest of the growth of the MSME sector.
NBFCs heaved a sigh of relief. But the housing finance companies will henceforward be under the regulation of the RBI. The Rs 70,000-crore promised capital infusion in PSU banks even after acknowledging the efficacy of the Insolvency and Bankruptcy (IBC) Code in resolving NPAs should have been done with some accountability by the banks that showed up over Rs 71,000 crore in frauds in 2018-19. This Budget has not touched reforms in the financial sector, the crying need of the nation. Public sector banks particularly have a lot to clean up their stables.
The agricultural sector has allocations that do not meet up with the announcements and aspirations of farmers. The Finance Minister targeted self-sufficiency and exportability of foodgrains, fruits and fish but the resources earmarked are far too inadequate. E-Nam and e-markets have made limited inroads thus far and at the farm gate not much is programmed for change. Unless produce-wise aggregators reach the farm gate not much benefit will reach the farmer. A comprehensive agricultural marketing legislation with full acceptance of all the States and changes in the value chain management from farm gate to processing with fiscal incentives for technology adoption are imperatives and there is no such challenge seen in the Budget.
Telangana has shown the way in ushering in change in the farm sector through a bouquet of schemes like Rythu Bandhu and agricultural insurance. The Union government would do well to adopt them with adequate budgetary allocation at the time of firming up the Finance Bill.
Chance for Startups
Startups have all that they wished, which should promote innovation and entrepreneurship. Manufacturing growth is almost stunted amidst continuously declining credit for the last five years but for the recent marginal increases. Incentives to manufacturing startups should be more fiscal than financial and rebuilding the eco-system for sustainable manufacturing growth brooks no delay. Manufacturing startups must prove themselves to avail tax benefits.
But the carpet laid for investors is neither red nor orange. Private investments and global value chains cannot be expected to come in by singing good music into the ears of investors. Allocations under energy front are a welcome feature with renewable, solar energy getting their fair share.
(The author is an economist and risk management specialist)