If the heavy economic/financial jargon is set apart (that is usually found in newspaper articles), in very simplistic terms the Budget 2020-21 presented by Union Finance Minister, Smt Nirmala Sitaraman (on 01-02-2020) in the parliament, was a liberal one. By reducing the corporate tax to 15% to the new companies and 22% to the already existing ones, there is a scope for expansion of business and creation of jobs (unless there are no other bureaucratic hurdles in the way).
Similarly, personal income tax reduction puts more money into the pockets of the middle classes. There are many schemes provided for in the budget that would benefit farmers, workers and below the poverty line sections through Direct Benefit Transfer (DBT) of money into their bank accounts. This way, the business people, the middle classes and the deprived classes will have money in their hands to spend. So, this will result in fueling the economy.
However, there’s another view that goes contrary to it in economists circles and the opposition. A section of economists including Abhijit Benerjee, the Noble laureate, who say, instead of this diversification of money, it is better if the government pools the money by way of higher taxes and spends meaningfully on infrastructural projects creating jobs to many. This is in a way a Communist ideology.
In capitalist countries, for e.g USA, they favour low taxes. The reason is: if the government taxes heavily, the money goes to government coffers and it gets accumulated in it. So, with the massive fund at its disposal, the government of the day becomes responsible for all the decisions it takes for investing it. Some decisions of the government may turn out to be good and some may prove catastrophic. Hence, the government owning money is a centralised process. No one would like the government accumulating all the capital (money collected by way of very heavy taxation). For, it tends to call shots. So, therefore, instead of all money going into government hands, it is better to go into diversified fields: corporates and to the needy people to spend, as they would deem fit.
As a matter of fact, a single agency/processor ( i. e the government) makes a wrong decision that would be disastrous to the whole country. Whereas, if the money is with the corporates, if one of which takes a wrong decision the other will capitalise on that. That way, there will be checks and balances. That’s what is called a free-market economy. In Communist countries, the government controls the money. In those countries, it is said, people work according to their abilities and get remuneration as per their needs.
Now, in this budget 2020-21, the government has given money into the hands of the people, as it perceived that there is a consumption crisis i.e people are not buying and eating more as they have very little or no money in their pockets. Spending money more and more on buying things by people indicates ‘demand’ (for those things). This demand would lead to increase in manufacturing. That would, in turn, fuel industrial growth. However, to ensure this demand and supply chain to pick up, one has to wait and watch. For, the finance minister has not opened up free- market for the consumer to buy goods at cheaper rates. By laying heavy important tariffs on finished products from abroad, it barred their entry into the country. This is all to encourage domestic market. In a free-market scenario, the customer has the choice. In India, the situation is different. The MSMEs are in a crisis, as they were badly affected by the imposition of multi-layered GST to a large extent and to earlier demonetisation. So as to boost their prospects and employability to many people, this measure is presumed to have been taken.
As per the reduced import tariffs on the raw material, the corporates are getting them cheaper from other countries. The benefit the corporates get that way, they should transfer to the consumer also by selling the finished products at cheaper/ affordable rates to boost the demand. There is an opinion among the many educated Indians that the businessmen are too much pampered in our country. That’s in two ways: one by lower import tariffs to get raw industrial materials cheaply. Two: by not opening up the markets to the world players so that the consumers have their choice. Hence, there should be a level playing field for the demand and supply chain.
On the whole, the budget is a very generous one. The government has proposed 112 medical colleges on PPP basis to reduce shortage of doctors, allocations were made to fulfill the PM’s desired project: to give piped water to all Indian homes, abolition of Dividend Distribution Tax (DDT), for consumers an affordable low-end housing, consumer – durables and automobiles, Krishi Uddan and also cold-storage trains for farmers to quickly move their perishables to market. In addition to that, higher education institutions that will start with apprenticeship-embedded degree/ diploma courses by March 2021 to boost job opportunities for general stream students. FDI opened for higher education. Above all, a Tax Charter for taxpayers’ benefit, buying of Indian Bonds in Foreign Industry – FRBM Act. So, all in all, the Budget 2020, though a lengthy one, covers many.