The only big idea about the eighth budget of finance minister, Nirmala Sitharaman, is an announcement of an income tax exemption of upto Rs 12 lakhs. It is a big jump no doubt, from the exemption level of Rs 7 lakh earlier. There is a Political catch in that though.
But in a way, this is a borrowing from AAP's conception about Delhi electricity charge. That is, if income exceeds Rs 12 lakh by one single rupee, then there will be a progressive rate of taxation from Rs4 lakh income onwards.
With, say, an income of Rs 12 lakh plus one rupee, the person will be charged at 5% for income above Rs 4 lakh and onwards at a progressive scale. Presumably, hoping that the people earning upto Rs 12 lakh, will get the full tax exemption, the question is:“will this push up domestic demand'. That given, 85% of the current income tax payers should be exempted from payment of tax. The government concedes over Rs 1 lakh crore on this change.
This could be described as a middle class budget, singularly lacking in high ambitions and rhetoric. It does emphasise on fiscal prudence and mentions thrust on private sector investment. The overall flavour is of a conservative budget. Lack of rhetoric is reflected in the muted response of the stock market.
“Democracy, demography and demand” she had observed as the critical pillars. She had stated her basic objective at the outset, saying:“This Budget continues our Government's efforts to accelerate growth, secure inclusive development, invigorate private sector investments, uplift household sentiments, and enhance spending power of India's rising middle class”.
That way, she was looking for a rising domestic demand, domestic private investment and ground level domestic small and medium scale entrepreneurship. The budget has given importance on the small and medium sector.
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This is the quintessential supply side economics. The classic example was when President Ronald Reagan had offered large tax cuts to Americans ad they returned with a massive jump in demand and pushed American economic growth.
By and large, leaving aside the jump in exemption, taxation rates have been left untouched. Would the income tax concession for the lower and middle class drive overall domestic demand and help India sail through the forthcoming Trump Storm tariffs and a tumultuous global economy.
In the Economic Survey released on January 31, this question was raised and sought to be answered. The Survey had argued that the global situation was deteriorating or at least globalisation was on the retreat. Hence, the need was for giving a further boost to domestic demand.
India has been growing primarily on the shoulder of domestic demand. Exports could be only residual. China has been hoping to get a breather through higher domestic demand, which it has not been able to achieve so far.
At the same time, the finance minister had sought to protect India's export interests. She had done some changes in the customs rates and structures, which could be said to be initial posturing for a conditional negotiating stance with the threat of barriers from Trump's America.
The excitement about tax aside, the budget speech sounded like an iteration of some small time projects and proposals for the farm sector, travel and tourism, health and mining. Not being highfaluting, could be eventually beneficial as well. How?
The finance minister has emphasised the farm sector as a first engine of growth. The finance minister has sought to encourage value added agriculture. Fish culture, fruits and vegetables and food processing industry are sought to be developed.
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As for domestic industry, the budget pins its hope on creation of domestic demand, which alone could provide the push to fresh private sector investment. After all, if the fiscal deficit has to be maintained, government expenditure cannot go on rising. The budget has not announced large public investments in infrastructure projects or other public investments.
The government has looked for a major step in domestic manufacturing which has not materialised so far. Instead, the budget now looks forward to beefing up the small and medium sector and the more job creating activities for meeting the challenges of manufacturing as well as raising employment. The budget at least seeks to portray that vision.
A new kid on the block however is the so-called“modular nuclear power plants” and private sector participation in this effort. She is hinting at more liberalised overseas foreign direct investment in the molar nuclear plants. Smaller nuclear power plants could be a major player.
This could be a determining factor if India has to push ahead in artificial intelligence. AI could develop on the basis of easy availability of power.
The government is banking on public private partnership to increase investments in the infrastructure sector. The government has not gone big in announcing large public investments in infrastructure.
Sitharaman has pegged the fiscal deficit at 4.4% of GDP, against budget estimate of 4.8%. . This could be possible mainly on the back of buoyant GST collections. This kind of controlled deficit should leave larger playing field for the private sector to mobilise funds. In the end, every budget could not be big announcement one. This one seeks to move forward with the small steps to add up to a major leap. (IPA Service )
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