At the outset, let me say that I am, what the left loosely calls a Bhakt. I have, in the past, vociferously defended this government. Incidentally, I am also one of the many who answered the Prime Minister’s clarion call to give up gas subsidy for the Greater Good.
Yet, today, given the complete ineptitude of the opposition, I find myself pushed to upbraid and question this government on the points it omitted in Budget 2019. True, that it has some inspiring ideas, namely: Electric Vehicles, National Research Foundation, Listing of NGOs, Brown Field Airports, 17 New Tourist Centers among others. The pink papers, however, have been rife with articles on how and why, this still is, a missed opportunity. And, despite my Bhakti, I find myself agreeing with them. In this article I am trying to detail why this budget is a disappointment for most of us:
The New India:
As is becoming apparent with every subsequent budget, New India much like Old India, is a welfare state.
First came the doles to farmers, in pre-election season and now the ever-increasing pension blanket that covers small shopkeepers too. For instance, the PM Kisan Samman Nidhi Yojana promising to give 6000 to every farmer in the country, is costing the exchequer 87200 Crores annually. What started out as a well-meaning scheme to support farmers with small, micro land-holdings has now, by making it applicable to all, become a freebie galore! The scheme now includes even the farmers with larger land holding and farm income. Given that a tax on agricultural income is a politically unpopular decision, this segment of income generators, specially the relatively prosperous ones, have a no-holds barred incentive to consolidate land holdings, generate gargantuan income and never pay a dime in taxes, while the government continues to give free handouts to them!
This is not to say that there should be no social welfare schemes by the government, rather that the government should ideally look to create an annuity fund for each of these “Discerning” welfare schemes. Over a period of time these welfare schemes will hopefully become self-financed, thereby ending the need to finance them each year!
The mules of India on whose back lies the burden of building the great new structure of a Socialist country, are the tax payers. From the dark days of tax terrorism unleashed by Indira Gandhi during her reign, when the tax rates rose as high as 98.75%, this class has always been the mule.
Last few terms the Capital Gain tax were yanked all over the place and now this budget has come up with a brand-new surcharge for the Super Rich. That it is for the Super Rich alone, is a misleading statement if ever there was one. By its very nature, this tax will accrue to all those whose income, any income from any source, in a given year touches the 2-crore ceiling. So, if you are a businessman or a salaried person earning this much, then you will have the surcharge for sure, but you will also hit the surcharge if you receive proceeds from Capital Gains that touch the 2-crore ceiling. Which means that an ordinary tax payer earning an annual income much lower than the ceiling will be taxed if he or she, for instance, receives an inheritance that gives a capital gain which moves the total income to the magical threshold!
What’s more this capital gain tax is regularly accruing to the FPIs, and mutual funds, who will now have to routinely pay surcharge. No wonder that the market has reacted sharply to this budget.
Most importantly, given the fact that the real estate sector is in doldrums and the interest rates on Bank Deposits are heading southwards, mutual funds and other financial instruments are the only viable investment alternative available now. This tax will be an unnecessary impediment to large amounts of money moving out of the real estate sector and into the financial vehicles. In the long run mutual funds might even lose some of their incoming funds to conservative instruments like PPF.
The Land of Lost opportunities:
Given that only one country in the world has more people than we, we need large scale employment generators desperately. Therefore, any industry that employs a large section of population, creating tax revenue streams for government, is a friend. Yet somehow mass employment generators such as Aviation, Tourism and Textiles have not flowered to their fullest under subsequent governments.
Much was hyped about the Udaan Scheme over the last couple of years but by not creating a blue print for 100 plus airport development, that is a missed opportunity. An airport can be a source of regional employment when other more traditional employers are not able to help. While around 35 new airports have been built by this government in their last term. This number is not large enough to unleash the true potential of prosperity that this sector alone can bring. The government should have a target of at least 50 new airports that it can build over the next 5 years. Where was this in the budget?
Many a European economy is solely dependent on Tourism and related revenues. A small country like Italy has 51 UNESCO World Heritage Sites. Another small country, France, receives the highest number of tourists in the world. For yet another small country, Thailand, tourism sector alone contributes close to 20% of the GDP. None of these countries mentioned in the most visited countries 2017, have a heritage that can hark back to 5000 years and counting. Yet, we are setting a relatively small target of just 17 cities to be identified and developed. Why should an old civilization like India not aim to dazzle the world, with at least 100 sites that are at least a 1000 years or older?
As far as Textile Industry goes, we need to hark back to our history: the reason why India was called the golden bird, one of the reasons why Europe was drawn to the subcontinent. Even ancient Romans used to buy our famed Indian Muslin for gold. Still, textile industry in modern India, is a tale of lost opportunities to say the least.
Given the recent trade wars with US, one would have thought that the Indian government would have moved quickly to capture the textile segment up for grabs, in America. Instead that move has happened in fits and starts.
Also given that the Textile Industry is a mass employment generator, with a potential to uplift large segments of the relatively poorer citizens, one would have liked to hear about the moves to unleash this sector in the budget. That however has as yet been a wish unfulfilled.
The One Trick Act:
This Budget has disappointed on several scores, however the biggest disappointment by far has been the one-trick act that the government revenue has been reduced to. Governments come and go, yet the revenue streams seem to draw maximum from Direct Taxes and Disinvestment. Over time the Disinvestment pool is set to reduce, where then, will the future revenue streams come from? Direct taxes alone cannot suffice, without increasing the base for both enterprises and individuals.
One of the ways of increasing the Direct tax base is for more and more corporate to flower and become tax payers, employers. The other is for more and more of such companies to employ larger sections of people thereby making them tax payers in the long run.
With this in mind, should the government not allow crowdfunding for entrepreneurship, in large-scale employment generating industries: namely – Transportation, Tourism and Textiles? Such contribution to registered start-ups, particularly in these sectors should be tax free on the lines of 80G investments, in the hands of the individual. That could be a way of killing two birds with one stone!