With its focus on the farm sector, health and education, the Modi regime has put out a fine Budget. But it could’ve done better had it given some relief in direct taxes. It’s time to shed legacies of past economics that pulled the nation down
The Union Budget has changed the thrust of the Indian economy. It stressed on agriculture for the first time since 1991, which began an era of liberalisation-globalisation for industry and the manufacturing sector but also the neglect of the farm sector. It is a fine Budget. It could have been better with some relief in direct taxes to increase the purchasing power of the rural and urban middle classes. Taxing people with an income of about Rs22,000 a month, in an economy that has seen severe erosion due to high inflation since 2009, is not prudent.
This Budget marks the beginning of the implementation of the BJP 2014 election manifesto. The party had said it will accord high priority to job creation and opportunities for entrepreneurship through the labour-intensive manufacturing sector and the traditional employment base of agriculture. It had also promised self-employment opportunities.
The doubling of allocation to agriculture and farmer welfare, from Rs15,809 crore to Rs35,984, and the Rs86,500 crore allocation for irrigation in the next five years, if implemented properly, can be a game changer. It will boost the farmer’s income, relieve him from distress and reduce rural poverty. The Budget also stresses on improved water utilisation, new rural infrastructure and the conservation of soil fertility.
Another focus area is the dairy sector which will get Rs850 crore in the next few years. Measures for increasing farm and dairy yield, such as better procurement practices, the focus on cattle wellness (Pashudhan Sanjivani), the new Nakul Swasthya Patra (animal health card), the E-Pashudhan Haat, the e-market portal for connecting breeders and farmers, the National Genomic Centre, should also help the rural economy.
The Budget also opens up the farm and food sector to foreign direct investment. It has proposed 100 per cent FDI in the marketing of food products. The Government says this will create vast employment opportunities. It is to be observed how organisations opposed to FDI react to this suggestion.
The Budget also reinforces the social sectors including education and health. Each panchayat will get Rs80 lakh and urban local body Rs21 crore for improving standards of living, sanitation and connectivity. Allocation has been increased by nine per cent from last year’s Rs1.39 lakh crore to Rs1.51 lakh crore this year. Women’s schemes have also seen a 12 per cent surge from Rs90,000 crore to Rs1.01 lakh crore this year. Also, health insurance cover of one lakh rupees per family and the Shyama Prasad Mukherjee Rurban Mission for improving rural infrastructure are likely to change the landscape for a cleaner and healthier India.
Higher education, the lack of which in proper quantity and quality has created a strong community of non-resident Indians, also gets priority in this Budget. This is important given the recent complaints about the competence of Indian graduates and postgraduates. If India’s youth is to be employable, world-class higher education institutions are needed. Initially, 10 institutions each are being planned in the public and private sectors. An allocation of Rs1,000 crore has been made for higher education.
The Budget also incentivises creation of new quality jobs in the formal sector. The Union Government will pay the employers’ contribution of 8.33 per cent, which will be Rs1,000 crore in 2016-17, for all new employees, to the Employees Provident Fund Organisation for the first three years of employment.
Apart from ensuring continuity of jobs and social security, the Government should also check employers who are reluctant to show new employees in their books, adding to the stress among young workers. This year’s Economic Survey also stresses on this point.
The entrepreneurship sectoer has been given a boost with a 100 per cent deduction of profits for start-ups and a Rs1.8 lakh crore loan through Mudra Yojana. Also, there is a major boost to scheduled castes/tribes and women in the Start-up India Stand up India programme.
These measures increase the burden on the Union Minister for Finance who also has to pay additional amounts to the States. But the Minister has made up some of the difference through the introduction of many cesses. In 2016-17, the Krishi Kalyan cess will bring Rs5,000 crore and the infrastructure cess Rs3,000 crore. There are other cesses also that will burden the taxpayers, bringing the net revenue to Rs1.94 lakh crore, almost one-tenth the total budget of Rs19.78 crore.
Higher taxes dampen the positive steps proposed in the Budget and even prove to be inflationary. This is a matter of concern. The Government is sandwiched between welfare needs and a fund crunch. It also has to understand that higher taxes reduce purchasing capacity. For example, a car is no more a luxury today and putting a ‘sin tax’ on it might hit the manufacturing sector, boosting which is a priority for this Government. Similarly, when eating out becomes too expensive, many restaurants face closure — this negates the Government’s efforts to promote entrepreneurship.
The Government should reconsider lowering service taxes and levying some other cesses. It also needs to consider removal of Tax Deducted at Source on bank deposits. Interest accruals are mere hedging of value and not earnings.
The world is at a critical juncture and India stands apart for its domestic strengths and demographic dividend. Discussion on how to have more revenue through promoting overall economic activities need to be considered. Income tax generates unnecessary disputes and collection costs. A view on this also needs to be taken to completely break from Manmohanomics.