New Delhi | Tarun Gupta: Strange as it may seem, for the last few years the build-up to the annual budget has been tepid. In 2020, it was the din over CAA and in 2021 the cacophony over farm law that unfortunately drew more attention. With the third Covid wave and forthcoming assembly elections, the pre-budget discussion this year may yet again be afflicted by insufficient interest.
Notwithstanding more pressing priorities or apathy of the political class, in a democracy, civil society would be well served to not gloss over deliberations on pertinent issues. Union Budget isn’t just a statement of account. It is an expression of intent, an occasion for the central government to lay down the policy road map.
There are experts better versed with the intricacy of the process. It is still preferable for the media to throw up critical questions.
Direct tax amendments are easily the most followed part of the budget speech. We hope that requisite reforms find their way. A new direct tax code that promises to improve the overall architecture is still awaited.
Corporate tax was reduced in 2019, personal tax is yet to benefit from similar benevolence. Peak personal tax rates in India are amongst the highest. The huge gap between corporate and individual tax only blurs the distinction between business and personal expense thereby promoting tax avoidance.
Dividend taxation, first as distribution tax at a corporate level, then in the hands of the recipient at marginal rates, and that too when it is from tax paid profits in the first place, is in clear conflict with the principle of tax incidence at one level. Upward revision in standard deduction has been a long pending demand of the salaried class. The great Indian middle class waits to be touched by state largess.
Inflation in India isn’t remotely as low as the first world. Apart from the consumer price index, there is asset inflation that is an increase in the price of assets such as bonds, stocks, gold and land. A natural concomitant is more income disparity as usually, the affluent class invests in these assets.
Of late safe/ stable investment avenues for the average middle class seem to have dried up. With fixed income returns at historical lows, it is a challenge for risk-averse investors to plough their savings in areas that earn enough to cover price rise. Despite insufficient understanding and an incommensurate risk appetite, they are forced to dabble in capital markets.
A low-interest rate scenario does encourage investment. In order to intensify private participation, the government needs to go beyond traditional modes of financial support. Regardless of opposition criticism, the state shouldn’t hesitate to get into private equity finance. Stepping up as an angel investor or venture capitalist can be symbiotic for a public-private partnership. While the prospective business gets access to debt-free finance, the state as the investor has an upside to make with soaring valuations of profitable enterprises. It does appear an idea whose time has come.
In the post GST era, the union government’s exclusive domain extends largely to direct taxes and customs duty. A well-calibrated trade policy that balances sustenance of domestic industry without compromising global linkage is imperative.
A crucial revenue source is a disinvestment. The long-overdue Air India privatisation is encouraging yet still a modicum. More concrete action must back intent in this aspect. Besides, central and state governments are the biggest landowners. Monetising surplus real estate that incorporate parlance is referred to as a non-core asset that can yield substantive amounts.
At a macro level, the government needs to ensure that economic recovery experienced since the second half of 2021 isn’t derailed by new Covid variants. At a time when the foremost priority is to save lives and livelihoods, this country yearns for investment in infrastructure, sanitation, health care, education, security, law and order and judiciary.
There are no easy answers. Certain fundamental principles must be borne in mind though:
- Our tax to GDP ratio is still poor, largely due to a low base. In the immigration analogy, we need high walls and wide gates.
- A society is more compliant when they are convinced that the money collected from them is used in nation-building rather than funding venality or sponsoring the opulent lifestyle of the elite.
- We hope the executive can withstand pressure and demonstrate the resolve to carry forward structural reforms.
- Governments commitment to infrastructure, reforms, job creation, MSME and small/ medium traders must reflect in its policies.
- Money saved is money earned. It’s high time we relooked unproductive subsidies and resist succumbing to populism.
Through the budget, the executive shapes the destiny of the nation. It isn’t for the state to ignite fire but it must provide an environment conducive for spontaneous combustion.
(Disclaimer: This article has been written by Tarun Gupta. The views expressed are of the author only.)
Posted By: Aalok Sensharma