Pre-election Budget by BJP disappoints Middle Class
As the nation goes for general elections in May 2019, just 15 months away, people expected a lot of reliefs as for years they have got addicted to a please all budget presented by the precursor Congress and previous avatars of the opposition in terms of the Janata party, Janata Dal and the BJP.
But Prime Minister Narendra Modi is not the leader of the older genre, but his moral fibre is completely different and his chemistry with the people is operating on a built up charisma, a do gooder image and largely that there is no alternative to him. So he has taken a lot of risks based on this factor even though the FY 2018-19 budget was presented against a backdrop of a complete rout in the by elections to two parliamentary constituencies and one assembly segment in Rajasthan on back of an anti-incumbency vote against the CM VasundaraRaje. Governments in MP and Chattisgarh are shaky as Congress unleashes an intensive anti-incumbency campaign as it did in Rajasthan.
The think tank of three – Modi, Jaitley and Amit Shah – has gambled on the TINA factor with the salaried class and instead launched a massive outreach programme on poll even budget that seeks to woo the farm lobby, the rural poor by emphasising on health, education as its primary goals.
Economists cannot dispute the fact that FM Jaitley could not have announced any major sops as the country is only slowly recovering from the ill effects of demonetisation, the confusion, cumbersome paper work and higher pricing of goods and services under the unified GST regime, and stagnancy in the manufacturing sector contributing to a lower than expected GDP growth at 6.5% (CSO prediction for March 2018 Q4). But Jaitley has pegged growth rate at 7.5% (against WB and IMF estimate of 7.6%) and gradual rise to 8% growth in coming years on the back of the structural reforms unveiled by the Modi government in the last few months.
Millions of salaried class expected the Modi government to come out with a proposal to raise the exemption limit for personal rates of taxation (Income Tax under direct tax regime) to Rs 3 lakhs from the existing Rs 2.50 lakhs and return of the Standard Deduction.
Corporates and Industry expected the government to slash the corporate tax to 20% from 30% or at least 25% in the first instance. But these hopes were greatly belied. And the return of the Long Term Capital Gains tax (LTCG) on incomes earned at the stock exchanges through sale of scrips at the stock exchanges actually sent all the bourses from BSE to NSE into a tail spin after an initial burst when outlays on infrastructure spend were enhanced on hopes economic growth will kick in pushing up the values of shares of different companies.
Jaitley did not find any justification for raising the tax exemption limit as for one it had been revised and enhanced in previous three budgets of the Modi government and secondly the government’s aim is to bring more people into the tax net to raise the tax buoyancy so that government has more money on hands to spend on social welfare and development schemes for the overall good of the nation. The finance minister has claimed that an additional Rs 90,000 crore had come into the government treasury as a result of the anti-tax evading (black money and corruption tackling drive) measures of the BJP government.
The standard deduction also appears to be an illusion because the exemption limit being enhanced to Rs 40,000 from the previous Rs 10,000 is only on paper. A closer reading shows that it’s on expenses in lieu of interest incomes on term deposits and medi-care expenses. Tax analysts claim that such exemptions were already there to the tune of over Rs 34,000. So if you do a bit of additions and subtractions the actual benefit to the middle class salaried wage earner is only a tuppance Rs 35 per person. Because Jaitley had raised the education cess by 1% on Income Tax which raised the taxes to be paid by the individual.
Here is the arithmetic. Standard Deduction of Rs 40,000 replaces Rs 34,200 on existing reimbursements. So if you are in the 20% tax slab with taxable income of Rest 10 lakhs, youwill get 20% of Rest 5800 (40,000 minus 34,200). Rs 1160 benefit.
Now education cess goes up from 3 to 4%. , so if your income was inRs10 lakhs per year, you pay Rs 1, 12,500 as income tax. One per cent additional tax on this means you pay an additional Rs 1125.So net benefit Is:Rs 1160 minus Rst 1125 – Salaried class get whopping benefit (sic) of Rs35 , some relief.
Jaitley re-introduced the STD on the premise that he wanted to provide relief to the salaried class which were on the average paying more taxes at Rs 76,000 plus against the business person of Rs 25,000 plus. There are over 1.89 crore salaried class people paying income tax against 1.88 crore business persons. While the former cumulatively pay taxes to the tune of over Rs1.44 lakh crore, the latter pays only Rs 48,000 crore. Though Jaitley had admitted in the FY 2016-17 budgets that corporate taxes were rather high at 30%, he only reduced it to 25% and that too for industries with annual incomes or turnover under Rs 250 crore.
So the big ticket industries such as the Reliance, Adanis, Birlas, Tatas,Mahindras, Birlas, and others actually don’t benefit under the corporate tax regime for them to feel encouraged to spend or invest in projects, promote manufacturing leading to job creation. But MSMEs will benefit a lot by the tax reduction, but engines of growth are not the MSMEs but the big industries. Jaitley has gone all out to woo the MSMEs because they were the worst hit under the demonetisation and GST schemes. Essentially it was damage control before the elections.
The steel industry hoped for reduction in customs duties on raw material imports but it was not to be. India is no exception to the global glut in the industry. While manufacturing sector has not gained much from the budget but the IT and services sector has something to take away from the budget.
Finance Minister Jaitley cannot be blamed for not announcing major sops because of the problems of slow economic growth, rising fiscal deficit and objective to peg it at 3.3% of GDP by 2020, reining inflation, joblessness in the economy, and to incentivise the manufacturing to invest and produce so that the economy goes into the driving mode.
So it was a tough balancing act; wooing the farm lobby, the rural poor and ensuring good health for all and making Medicare within easy reach of the urban and rural poor. So the world’s biggest health care scheme was announced to cover 10 lakh core families (assuming a family of five it comes to 50 crore beneficiaries) with each family being entitled to rs five lakhs of medical expenses. Economists wonder how government will find the funds to run this scheme as it might overtake the entire budget outlay. Also, experts point out that existing benefit of over Rs 34,000 per person under the public health schemes has not been properly utilised or claimed by the people.
Higher MSP for farmers: Finance Minister pegged the minimum support price at 1.5 times the cost of inputs. Farmers’pan India felt MSP was below the actual cost of production, and state governments would not procure enough. Finance minister has targeted both this time. Instead of six different parameters that the Commission for Agricultural Costs and Prices considered for fixing MSP, including demand and market prices, now MSP will be solely based on cost of production.A house with a gas connection, electricity and a toilet for the poor is a clear poll promise from the finance minister, the budget reveals.
Ujjwala Scheme: Free LPG connections will be given now to 8 cr poor women instead of 5 cr. Out of which 3.34 Cr connections already released.Saubahagya Yojana: 4 Crore poor households to get electricity, with an outlay of Rs 16,000 crore . Towards universal healthcare: A Universal Healthcare Scheme. Government had introduced price control on stents needed for angioplasty to around Rs 30,000. However, the full angioplasty procedure could easily cost Rs 2 lakh. Now, with the Rs 5 lakh comprehensive family floater type of coverage for 10 crore families, this problem is addressed. Some 22,000 rural haats to be developed & upgraded into Gramin Agricultural Markets to protect the interests of 86% small and marginal farmers. Re-structured National Bamboo Mission gets Rs 1,290 crore, finance minister terms Bamboo, ‘Green gold. Loans to Women Self-Help Groups will increase to Rs 75,000 crore in 2019 from Rs 42,500 crore last year. Two New Funds of Rs 10,000 Crore announced for Fisheries.
Dalit outreach: Jaitley shows care for welfare of the dalit and backward classes is retained. The government has put together all schemes under different ministries and topped it up.
At a time when Govt. barely gave the middle class relief and hiked taxes on the affluent, FM proposed salary hikes for President (from Rs 1.5 lakh to Rs 5 lakh), VP (from Rs 1.25 lakh to Rs 3.5 lakh), Governors (from Rs 1.10 lakh to Rs 3.5 lakh) and MPs (automatic revision of emoluments every 5 years indexed to inflation), the budget reveals as per media reports. Ekalavya Model Residential Schools: To provide quality education to tribal children in their own environment by 2022 in every block with over 50% ST population.
Revitalising Infrastructure & Systems in Education (RISE)’, with an investment of Rs 1 lakh crore in next 4 years, to step up investments in research & related infrastructure in educational institutions. Operation Greens: Rs 500 Cr-project launched to address price fluctuations in potato, tomato and onion for benefit of farmers and consumers.
Tackling Pollution in Delhi-NCR :Special scheme to support efforts of governments of Haryana, Punjab, UP, and Delhi and subsidise machinery required for in-situ management of crop residue. Gobar-dhan:Launch of Galvanizing Organic Bio-Agro Resources Dhan (GOBAR-DHAN) to manage and convert cattle dung and solid waste in farms to compost, bio-gas and bio-CNG.
By and large Jaitley had a tough time walking the tight rope and chose not to please all as previous finance ministers did in an election eve budget but stayed on course to correct the fiscal policies and steer the economy to kick in growth that could create jobs and put more money in the hands of the people in the lower middle class and farmers so that some semblance of growth is achieved before the crucial Vote for Modi again in 2019 campaign kicks in.
T N Ashok is a Corporate Consultant, Resident Editor and Writer of Economic Affairs.