Author

Abhishek Modak

Abhishek Modak

Development Associate | VIF

BUDGETARY SECULARISM

The final budget of the present Government has ensured development for all, appeasement for none through allocations for each economic constituency with a rural focus to ensure the backbone is revitalised.

– Abhishek Modak & Utsav Patodia

The budget conjecture is always an interesting phase. One can listen to news editors, business tycoons and prominent economists, speak about the future with utmost conviction. Once the bird is out of the cage, the industry moves on. We don’t pause or look at the rear-view mirror trying to analyse who was speaking sense, or for that matter, whose projections really came to light. All our attention shifts to ‘what is’ from ‘what shall/will be’. But then as they say, we can only wipe our chin and laugh!

One would realise that sensationalism sells! The brouhaha about Long term capital gains was just blown out of proportion by the media and the markets continue to overreact. But then how bad was it or are we just missing the woods for the trees. There is a difference between populism and development and the question remains, did the budget belong to the former category or the latter. Being an agrarian economy, raising the minimum support price for Kharif crops by 1.5x was ah bold move to attack the crux of the problem, and it should go a long way in providing the rightful compensation to the ‘Annadatas’ of India, but only if the input costs are calculated on a holistic basis.

As most of the critics had rightly pointed out, there were a plethora of schemes for the rural India, ‘Bharat’. The extension of Ujjwala scheme to provide free LPG connections for over 8 crore poor women, tax deduction for producer companies, upgradation of 22,000 rural haats into Gramin Agricultural Markets (GrAMs) linked with e-NAM, advancement of connecting habitations with all-weather roads from 2022 to 2019, rural household electrification under Saubhagya Yojana and housing for all under PMAY are all steps towards ensuring ‘ease of living’ which the Prime Minister and the Government is increasingly focussing on.

In addition to the above measures, NaMoCare or ModiCare as one wishes to name it, formally ‘Ayushman Bharat’ the world’s largest government funded healthcare program which aspires to cover 10 crore poor families with 50 crore beneficiaries is a path breaking initiative providing Rs. 5lakh per family per annum. On the political front, it is more potent than even Ujjwala believed to have delivered Uttar Pradesh in favour of the ruling dispensation, this time the whole of India in 2019. But on the socio-economic paradigm, if implemented in an effective manner would not only reduce out-of-pocket medical expenditure and reprieve the households but alter the medical insurance and healthcare industry per se.

While the customs duty on mobile phones did increase from 15-20 percent, it was an obvious economic move to ensure that the domestic industries thrive and not just survive and a Rs.7100 crore boost to the textile sector would go a long way in redressing the unemployment problems faced by India, being a labour-intensive industry.

The problems faced by senior citizens were well represented and the increase of the threshold limit to Rs.50,000 on time deposits for the purpose of TDS is only a testimony to that. Also, the deduction for medical insurance under section 80D was enhanced to Rs.50,000. The re-introduction of standard deduction of Rs. 40,000 for the salaried class took care of the neo-middle class burgeoning the economy.

Never did a chapter (Capital Gains) in the Chartered Accountancy curriculum receive so much attention! Bringing in Long term Capital Gain(LTCG) was a bold move towards progressive taxation and proved that the government didn’t have a populist agenda and was ready to bite the bullet where it mattered. When LTCG was first done away with, it was accompanied by the introduction of the STT (Securities transaction tax). Even though LTCG is back, there isn’t any relaxation on STT. This shouldn’t really matter because STT is negligible and most of us don’t even realise that we pay it! The market reaction was a reflection of the negative sentiment, but that is how markets are. They tend to panic on the basis of incomplete knowledge. The Govt. tried to ease out the LTCG punch by plugging in a grandfathering clause which protects gains made till the 31st of January 2018. And also, only gains greater than a lakh would be taxable, so it isn’t a complete bloodbath. A lower Corporate tax rate(25%) for companies with reported turnover upto Rs.250 crore should have raised the animal spirits in the market, but the market seemed to be fixated on LTCG even though it was a soft punch!

An increase in the infrastructure outlay from Rs.4.9 lakh crores to Rs.6 lakh crores, and increase in the airport capacity by 5x highlighted an extremely progressive stance.  While this budget is a copybook example of a secular budget, sect here refers to as the various economic constituencies, it definitely enshrines the Modi doctrine of “Development for all, appeasement for none”, with each constituency being given something to cherish rather than direct doles, a trademark of the previous coalition.

Interestingly, the discourse in India on success of Budgets have been on ex-ante basis, discussing the allocations rather than achieved outcomes as a result of the past budget. However, the actual success of a budget can only be ensured on a post-facto basis which unfortunately never happens in India, rather being engulfed by discussing the next budget ex-ante. Thus while we commend our analysis of the budget to the readers, the most important caveat would be watch out for implementational effectiveness in the coming fiscal.

Abhishek Modak is a Chartered Accountant. He is associated with Vision India Foundation and engaged as a Consultant to the Department of Administrative Reforms & Public Grievances, Government of India.  Utsav Patodia is a practising Company Secretary.