Union
Budget: Infrastructure Stays The Ticket To Ride
The Finance Minister Nirmala Sitharaman wore a shade of
auspicious crimson on Budget Morning. And the document she read from was
wrapped like a traditional ledger, a Bahi
Khataa- in red cloth, tied with
golden string, embossed with a gold Ashoka Stambha.
It was a visual jettisoning of ideas, sequences and
straightjacket that came with the
erstwhile colonial era briefcase. The
budget itself was not an allocation of funds under different heads with an
attempt to balance both sides of the ledger anymore- it was a things-to-do list
that the money must be found for. Former FM Jaitley, in his five budget
presentations, hadn’t gone into free-form but Sitharaman did.
Nirmala Sitharaman said, in a press conference that
followed, that this budget was “A ten year vision with a five year target”. It was, as in Modi 1.0 where various things
were time-lined for 2022, India’s 75th year as an independent
nation, a typical Modi government move. It seeks perhaps, to blur the edges of
one term of NDA in office into another via its transformational agenda.
It was a different kind of budget speech too, taking on
from the optimism of the “Blue Sky Behavioral
Economics” and Nudge Theory mentioned in the Economic Survey. That cited the
voluntary giving up of subsidized cooking gas cylinders by the better-off in
Modi 1.0. It also cited a number of economic inspirations from ancient India
alongside the Asian universe. This, in a departure from ideas solely emanating from
the “East Coast of the United States”.
The budget speech which had its share of wisdom quotes,
was artful too- It covered an enormous amount of ground while being audaciously
low on specifics and time-lines. But it was steroid-strength high on intent and
thematics. It upended the order of emphasis. It made a concerted effort to inspire
fervour, belief, Esprit de Coeur.
However, it did not neglect substance in a bewildering
kind of way, with hundreds of modernist tweaks to how this country must act and
see itself going forward with little allocations in its wake. The elephant in
the room was how will India pay for it all without runaway inflation or fiscal hara-kiri.
But if most things are multiple year endeavours, then the slicing and dicing in
a given year’s balance sheet usually takes care of the fiscal prudence.
The stock market, made up of prosaic money men, ducked
its head, wondering why it still had to pay irksome capital gains tax when we
were on the $ 5 trillion bus.
There were some
moves, not very substantial, to recapitalize the banks and bail out the NBFC
sector. Housing Finance, like a naughty boy, will now be supervised by the RBI.
Divestment will continue to be something the government wants to do. The
Railways will get massive investment indicated as an ask, via off-budget
methods, esoterics like PPP, and so forth.
For a government big on national security, there was
practically no mention of defense, except to say that defense equipment imports
will be free of customs duty. This implies that all purchases will be conducted
off budget. Allocations in the fine print are to run the administrative
expenses of the armed forces.
The presentation was thick with dozens of procedural
improvements towards promoting greater efficiency and ease of usage, such as
interchanging Aadhar with PAN and “faceless Income Tax scrutiny”.
However, there were a few announcements that stand out.
And these, for their potential to be transformational. The government will permit
100% foreign investment in the leasing and financing of aircraft – a virgin area
domestically. It will also do so in animation, media, and in insurance
intermediaries. It will further encourage FDI into real estate, aviation and
single brand retail, setting up huge manufacturing for all manner of relocated
things from China. It will also
encourage the setting up of massive operations and maintenance infrastructure.
The domestic finance market does not have the heft to invest in most of these
new thrust areas.
The current maze
of Labour Laws, and even the archaic rental laws are going to be reformed.
In a possible recognition of high domestic government debt
of $2 trillion against a present GDP of
$2.7 trillion, the Finance Minister pointed towards India’s very low external
borrowing. This, even as the fiscal deficit target was still being capped at
3.3%.
She said India’s hard currency external borrowing was
some 5% of the total, and amongst the lowest in the world. Then she announced
the government’s intent to borrow more in foreign currency, to the delight of
the domestic debt and bond markets.
This will be good, when combined with foreign collaboration
in infrastructure development. If the announced Rs. 100 lakh crore for infrastructure
in the next five years comes, it could flow substantially from external
sources. This, of course, is also the glide path to the $ 5 trillion economy in
one go, even if all else flatters to deceive.
The budget speech showed consistent concern for improving
the lot of the rural and urban poor.
This, mostly with missions and infrastructure development, rather than the
doles favoured by the UPA. The latest mission, launched even before the budget,
after electricity, cooking gas, and toilets, in Modi 1.0, is piped water for
all.
The emphasis on housing for all, but not real estate, and
indeed all the other last mile provisions as yet incomplete, is carried over
into Modi 2.0. There will also be very many more rural roads and other
facilities. This approach has gone down well with the voting public of all castes
and creeds, as the massive winning mandate has shown, and it makes great
political sense to continue with it.
The smaller corporate entity, up to a turnover of Rs. 400
crores per annum, is now included in a tax rate capped at 25%. This was hinted
at in the interim budget, when only those under Rs.250 crores were qualified,
and has been delivered now. That it thereby brings over 99% of companies within
its ambit is the remarkable thing. There are just 0.7% of companies in India
which are bigger than this.
Perhaps now, many of the smallcaps and midcaps will march
on into the big league and make space for the new entrants and start-ups. This
budget dwelt on incentives and motivations for the start-up space. It is
clearly seen as a priority area though Indians living in India are not the most
innovative of people.
There are no changes in direct tax rates from those that
were announced in the interim budget. They exempt over 80% of income tax payers,
who earn no more than Rs. 5 lakhs per annum. The broad-based fuel using public has
been served with a single rupee in
additional excise duty per litre. And this, predictably, excited a great deal
of comment.
This budget also introduced another couple of taxes on
the rich, but mercifully stayed away from the reintroduction of unworkable
Estate Duties. A higher surcharge on income tax of 3% up to 7% will apply to
those who earn taxable income of Rs. 2 crores per annum or above, and there
will be a 2% TDS on cash withdrawals of over Rs. 1 crore p.a. from a single
bank account.
There was a great deal on electric vehicles - incentives
for manufacturing them with an ambition to become a global hub. There will be
subsidies for buying them, and a big push to the setting up of Electric
Charging Stations, the manufacture of Lithium
Ion batteries and Solar Photovoltaic Cells and other “green” equipment. If the idea
catches on with the automotive sector it could do well, even though nascent
electric vehicle technology, high cost and no charging infrastructure as yet,
are daunting.
The Budget, like the Economic Survey before it, glossed
over all the problem areas. It made no mention whatsoever of a severe economic
slowdown and shortfall in targeted revenue collections. Instead, it talked up a
rise of 78% in direct tax collections over the last two years.
Sitharaman elaborated that the economy had grown by $1
trillion between 2014 and 2019. And that it would reach $ 3 trillion in the
course of this financial year. India is already the 5th biggest economy
in the world at $2.7 trillion, and 3rd , if its status is calculated
in PPP terms. So, $5 trillion, here we come, and never mind the impediments in
between!
(1,401 words)
For:
The Sunday Guardian
July
5th, 2019
Gautam
Mukherjee
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