Home Opinions The budget gets almost everything right, but sends a few wrong signals

The budget gets almost everything right, but sends a few wrong signals

There is a realization within the government that it has to revive private investments and doing so would require to take concentrated policy action.

The budget presented on Friday gets almost everything right and was perhaps extremely bold on its vision for a “New India”. The same was reflected in the #BudgetForNewIndia that was used by none other than the Prime Minister and this sends a very strong & positive signal to private capital.

It is no secret that something went wrong in FY2018 from the second quarter and that’s why our growth slowed from 8.0 to 5.8 per cent within 3 quarters. This fall is likely to have spooked many, but the slowdown was a consequence of our monetary ignorance. With a series of rate cuts since then, we can see a reversal in the policy stance, and that is a welcome sign.

Beyond the monetary woes, expectations were on the budget to ensure that growth revives, and India’s finance minister has set the ball rolling for what looks like a departure from our conventional policy stance. It is important to note that the importance of budget has come down over the years, more so since the introduction of GST. Therefore, we no longer have anchors telling us what’s expensive or cheaper after the announcement of our budget- or well, we sometimes do when there are changes in import tariffs.

- Ad - - article resumes -

In my wishlist for the budget, I had indicated lowering of corporate tax rates- and of cost of capital to revive investments. The economic survey highlighted these issues as it stressed on the revival of investments. It is worth mentioning that the High-Level Advisory Group (HLAG) on trade headed by Dr Surjit Bhalla raised these points a couple of months ago. Therefore, there is a realization within the government that it has to revive private investments and doing so would require to take concentrated policy action.

With India having one of the highest corporate tax rates in the world, followed by a dividend distribution tax and surcharges, firms are left with little retained earnings to invest. Add to this the high cost of capital in India and firms become further dissuaded from taking risks on their balance sheets. It would be fair to see that the risk-reward was mismatched. We’ve seen some correction come in with the reduction in corporate taxes to 25% for 99.3 per cent of the firms. But then, why ignore the other 0.7 per cent? Especially at a time when we want to sustain investments. Bigger firms have bigger capacity and aptitude to invest and therefore they should not be subjected to one of the highest corporate taxes in the world. To benefit the small firms, you could have given an additional 2 per cent reduction from 25 per cent level while for the rest you could have kept the rates at 25 per cent itself.

Nevertheless, the fact that we witnessed a corporate tax cut for a majority of firms is itself a big development and it sends a sign that the government is embracing businesses. When one views the statement on integrating India into the global value chain, and relaxation of the local sourcing norms for single-brand retail, it convinces one more that we’re on the correct path.

But the relaxation of local sourcing norms should happen for other sectors too, especially the ones that are looking to shift their supply chain from China. This is a once in a lifetime opportunity in front of us to seize the moment and transform our economy. Doing so will require multiple policy steps over the coming months and I am optimistic that the government is likely to take them.

As far as the hike in excise duty and cess on petrol and diesel is concerned, it’s a good fiscal strategy but it’s one that is only likely to work when the international crude oil prices are low. For long term prudence, it’s important to realize that our expense is majorly on interest payments due to the high cost of domestic borrowings. The government has rightly identified this and decided to look at sovereign debt in US denominated bonds to raise money from international markets. This is likely to have a big impact in strengthening our fiscal position over the coming years.

However, it makes little sense to increase the surcharge on the rich. The surcharge has the potential to reduce compliance through legitimate measures and as is the case, expected revenue mobilization from the tax is only 2.8-3 thousand crores. It is likely that the surcharge may not mobilize this amount and therefore, it makes little economic sense to introduce it. Politically, it may send the message that the government is taxing the rich but at a time when we want to embrace businesses and businessmen, one can avoid sending such signals.

By all means, as a middle-class citizen, I didn’t get a tax break, not in today’s budget nor in the previous one. Despite that, I argued that if there’s limited tax space then the government should cut corporate taxes rather than income taxes. My logic for this argument was based purely out of what the economy required at the moment because a strong economy is likely to benefit me more rather than a modest tax cut. This is true for all those who’re drawing regular salaries and wonder what was there for them in this budget. The answer to that is a strong economy that is likely to help them move up the social ladder towards higher income groups.

Help Opindia Reach Every Indian. Share This Post
We need your support to survive in the media industry. Please consider paying us for the content we produce:

To know more about these payments, please click here.

Big Story

SC will hear Ghulam Nabi Azam's petition against abrogation of Article 370 on 16th September

2019 World Cup Is Here!

Catch the latest on Cricket World Cup as it unfolds, special coverage by Opindia

To Advertise on Opindia.com Click here

Rakesh Jhunjhunwala slams notions of economic crisis gripping the country

“I don’t want Pappu to be my Prime Minister”: Investor Rakesh Jhunjhunwala says PM Modi has performed very well

In an explosive interview, Rakesh Jhunjhunwala pulled no punches in rubbishing the doomsayers casting aspersions on Modi government

Prashant Kishor’s team starts reaching out to media and influencers with ‘paid content’ offers ahead of West Bengal assembly elections

Darjeeling Chronicle has exposed how Prashant Kishor led IPAC is reaching out to 'influencers' and digital portals to carry out paid campaigning for TMC and Mamata Banerjee ahead of 2021 West Bengal state elections

‘Kashmir free from shackles of Pakistan sponsored terrorism’: Pakistani org representing Pashtuns refuses to support Imran Khan’s Kashmir protest, backs India

Pashtun Tahaffuz Movement (PTM), the principal body representing Pashtuns in Pakistan, has rejected Prime Minister Imran Khan’s recent call to all people in which he urged them to come out and support Pakistan’s narrative on Kashmir. 
Image Source: twitter

Malala Yousafzai spreads fake news, claims girl from Kashmir missed her exams on August 12 which was an Eid holiday

According to Malala, one of the three girls from Kashmir missed her exams on August 12. However, August 12 is a notified holiday declared across the country by Government of India on the occasion of Bakr Id or Eid ul-Adha.
Sharad pawar invents a new excuse to shift the blame of the defeat in the Lok Sabha polls

Pakistan hospitable, BJP govt spreading lies about Pakistan for political gains: NCP supremo Sharad Pawar at minority event

NCP chief Sharad Pawar expressed his admiration for terror state Pakistan stating that the people of Pakistan are "very hospitable" while blaming BJP govt for spreading lies about Pakistan for political gains

Raj Thackeray’s MNS, with zero Vidhan Sabha seats, threatens to boycott forthcoming Maharashtra Assembly elections

Raj Thackeray's MNS is contemplating to boycott the upcoming Maharashtra state assembly elections
Vivek Ranjan Agnihotri

Vivek ‘Ranjan’ Agnihotri speaks about caste politics being played in Bollywood

Vivek Agnihotri responds to Neeraj Ghaywan’s tweets, and also shares a hitherto unknown trivia about his full name.
Allahabad University professor goes on indefinite leave after video insulting Hindu gods goes viral

Allahabad University professor who had boasted of urinating on a Shivling in viral video goes on indefinite leave, claims ‘lynching’ fear

Dr Vikram Harijan had claimed in the video that he had once urinated on a Shivling just to prove that the gods cannot do him any harm.

‘I begged them to kill me’: Uighur Muslim woman describes her torture in Chinese concentration camp

The Chinese have attracted very little retribution from the international community for its inhumane treatment of Uighur Muslims.
Subscribe to Day's Top Stories
[newsletter_form type="minimal"]
- Advertisment -

Latest articles

Connect with us

Help Opindia Reach Every Indian. Share This Post