The big question looming ahead of Finance Minister (FM) Nirmala Sitharaman’s debut Budget represented a quandary. How to take India to a $5tr GDP future in the backdrop of a slowing economic present? Most commentators perhaps assumed the FM would announce a roadmap to set India on an annual growth rate of 8%-10% for the next half decade or so!
It was an unfair question to start with. However, considering the target was set and announced by the government itself following its massive electoral return, one really cannot blame the expectants!?
Let us keep the broader vision aside for a moment…the fact of the matter is that India’s supply side has been sluggish for the past 12-18 months, as demonstrated by all major indicators be it Gross Fixed Capital Formation (GFCF), private investment at-large, manufacturing/services sector indices, or credit. And in recent months the demand side i.e. consumption seems to have caught the trend, intermittently slowing but now structurally coming to a halt. In shadows are an NBFC-led liquidity crunch, the need to create more jobs, and a burgeoning agrarian distress which shows no sign of dissipating. And let’s not forget an ever-shrinking fiscal headroom.
Any FM, notwithstanding her or his superior judgement would be lacking if they fail to address these matters on priority, before even reflecting upon a broader vision. The criticality of their prompt resolution cannot really be overstated.
On that mark the FM’s speech on July the fifth was an exercise in reason. Having an almost workman-like quality from the start it focused on targeting acute areas of the “institutional” kind. Softer credit and operational greasing of MSMEs, real measures to deepen corporate bond markets, enhancing market liquidity in general, easing FDI/FPI norms, another bank recapitalisation, government support for NBFCs, corporate tax breaks, disinvestments, nation-wide water works, electricity, gas, and connectivity commitments – all aiming to revive both liquidity and job creation in parallel.
This institutional emphasis was even more pronounced when one could see most interventions in Direct Taxes were centered around corporates rather than individuals. While tangible incentives were presented for companies e.g. advanced tech players, startups, property developers, electric vehicle manufacturers; emphasis was shifted towards plain operational optimizations for individuals. Case-in-point being the Aadhaar-PAN linkage and the pre-filling of IT returns.
The FM has volumes and scale in mind, rather than specific mass-market constituencies like the middle class or rural. How else would you explain new surcharge only for the wealthy but status quo for the rest?
However, in its efforts to effuse pragmatism the Budget did miss a crucial ingredient – inspiration. When would we re-align ourselves away from tax revenues? When would we dabble with innovative models to enhance government coffers, be it Sovereign Wealth Funds, at scale public real estate unlock or monetization of PSU assets?
Why considering global and even Rest of Asia’s personal income tax, indirect and corporate tax rates are on a structurally downward trajectory, we take baby-steps towards reductions without yet giving up easy pickings like spiking duties on petrol, diesel, gold, or even books? Why do we keep tethering agrarian distress on the backburner, preferring to rehash older schemes, talk of passive concepts like “zero budget farming”, but rather not make significant commitments towards industrializing Indian agriculture?
Because July the fifth may have addressed the issues most pressing, but it is still a case of band-aid fixes abound.
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