Millennium Post

‘Low on hype, high on content’

The first full budget of the Modi government does not make ambitious new moves, but numerous small ones for long term impact. In the end, it is an intelligent document for achieving the principal goal of job creation through higher growth. This is how it tries to achieve this goal.

The Budget has not proposed a slew of fresh taxes to mobilise large amount of fresh revenues. On a budget of close to Rs 18 lakh crore, it aims to have additional taxes of just about Rs 15,000 crore. This implies that the tax framework has been kept stable. This, despite the fact that a much larger amount of revenues have to be handed over by the Centre to the states under the 14th Finance Commission award.

Indeed, within that constrained fiscal space, the Budget has taken a long-term step for lowering corporate tax rates over a four year period from 30 per cent to 25 per cent. This was to be done to achieve a competitive position in relation to peer countries for attracting investments. Besides, a lower tax rate should encourage Indian investors and companies to make more investments within the country rather than migrate to other destinations.

That apart, the only other major tax change is the substitution of Wealth Tax with a new surcharge on the super rich. Scrapping the Wealth Tax, which yielded only Rs 1,008 crore by imposing a surcharge on incomes above Rs 1 crore, is politically courageous and economically rewarding. Cess on super income is estimated to yield Rs 9,000 crore in revenues.

Finance Minister can be said to have presented a stable fiscal framework for the economy to gather its own steam and grow. The underlying idea is that with a long term fiscal frame, business and industry should grow and create jobs. These moves should over a period make India more attractive and help get investments both from Indian corporates as well as from global companies. Going apace with this, Finance Minister proposes to pare away the numerous exemptions available to Corporate Tax payers. These unnecessarily clutter the Indian tax administration and lead to litigations as well. The Finance Minister, therefore, has initiated a game of give and take.

Jaitley has also given greater benefits to individual income tax payers. He claims the net impact of the benefits he has accorded, like higher deduction of medical insurance, higher deduction of expenses on medical purposes, contributions to pension schemes and others should mean that individuals having income of upto Rs 7 lakh do not pay any taxes. However, this has not come as standard deduction. The individual has to work to earn that much exemption, that is, individuals have to take medical insurance, pensions plans,  and other schemes if he has to take full benefit of the exemptions. These would therefore come as forced savings. These proceeds could then be available for investment by the insurance companies in long term projects.

If any sector should rejoice after this budget, it is the insurance companies. It can be expected that the Indian insurance sector should expand substantially following the concessions the finance minister has given for insurance and pension schemes. These schemes attempt to capture household savings for social investments. Another scheme which should help mobilise household sector savings is the one for monetisation of gold. The Finance Minister has launched gold monetisation scheme to allow the depositors of gold to earn interest in their metal accounts and the jewellers to obtain loans in their metal account to be introduced.

In this context, the proposal for Sovereign Gold Bond, as an alternative to purchasing metal gold scheme could become a major instrument for mobilising huge savings of the household sector. However, developing an Indian gold coin, carrying the Ashok Chakra, unfortunately panders to the gold craze of people. He has shown courage as well. He has mounted a frontal attack on black money, which the BJP had promised in election campaign. This is not about bringing back money stashed away abroad, but looks like preventing black money generation by imposing criminal liability on those who are found to have avoided paying taxes. The punitive measures proposed could make such actions less attractive. Generation of black money and its concealment to be dealt with effectively and forcefully is the dominant approach in tackling the menace of black money.

Finance Minister has made some seminal moves for encouraging growth and job creation. His move to cut tax on royalty payments for technology transfer is a case in point. Besides, creation of a new bank to fund numerous small business could encourage growth of such activity. These should in turn generate jobs and help income creation. The budget should in its overall impact help lift the mood
and take India to a higher growth trajectory.    IPA
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