New Delhi | Tarun Gupta: The din over farm laws has prevented discussion on the Union Budget to be in the forefront, an unusual and undesirable concomitant of the kerfuffle. The opposition leaders who have thus far been immersed in farm politics, will expectedly, post budget announcements, put on the lens of finance and economics. While articulation of expectations, aspirations and suggestions may have been missing, come 1st February, we can be certain of sweeping condemnation.

Irrespective of the role of our leaders in progressive politics, the civil society would be well served to not gloss over pertinent issues. An annual Budget is an occasion for the central government to not just present its statement of account but also to lay down a policy road map that directly impacts sentiments.

There are experts better versed with the intricacy of the process, it might however, still be preferable for media to throw up questions and give inputs.

Direct tax amendments are easily the most perused part of any budget speech. I hope under pressure of revenue constraint due to Covid, these reforms are not overlooked. We are awaiting a new direct tax code that is expected to improve the overall architecture. Corporate taxes were reduced in September 2019, although due to the corona crises, the benefit of that change is yet to be seen. Personal taxation hasn’t benefited from such benevolence with peak taxation rates amongst the highest. The gap between corporate tax and peak income tax rate is perhaps the maximum in India. The obvious implication is to blur the line between business and personal expenses.

Dividend taxation in the hands of the recipient is clearly in conflict with the principle of tax incidence at one point only. A reasonable upward revision of standard deduction for the salaried class has been a demand pending for eons. The current economic environment may restrict big-ticket relaxation, however, an expression of intent will be encouraging.

The last thing we need is any additional pandemic surcharge. Our tax to GDP ratio is still poor and the way to increase is to expand the ambit. In immigration analogy, we need wide gates and high walls. In some of the first world countries, personal taxes may be at the same level as ours. That cannot form the basis of continuing the same. How long can we have a scenario of Scandinavian level taxation in lieu of Africa grade services?

Interest rates in India are at their historical low. While that should boost private investment, the government needs to do more to draw capital. A downside for a middle-income assesse is that avenues of personal investments have dried up. One struggles to identify safe investment havens where you may earn even enough to keep pace with inflation.

Inflation levels are still not as low as the developed world. Consumer price index aside, there is asset inflation, which is rise in price of assets such as bonds, stocks, gold and land etc. It creates two situations – more income disparity since usually the affluent invest in such assets and that one may be forced to dabble in the volatile capital markets or asset classes despite insufficient understanding or incommensurate risk appetite.

Revenue increase in these times is the most formidable task. Post GST, indirect taxes fall within the purview of the council and central government’s exclusive domain extends to direct tax and custom duty.  The tradeoff between protecting domestic industry under make in India, and moving up the value chain in exports, forms the core of a calibrated trade policy. Apart from direct tax, the most lucrative revenue source for the state is disinvestment. This is an area government hasn’t fared well in the last six years. It’s more important now than ever before.

Monetising real estate is another area than can generate considerable money. Our PSU’s own land worth thousands of crores that in corporate parlance can only be referred to as non-core assets waiting to be utilised. Besides, our central and state governments own properties worth tens of thousands of crores, which are occupied for residential purposes by politicians, bureaucrats and government officials. It might be worth considering housing them in plush apartments in high-end condominiums rather than sprawling bungalows they live in. The freed real estate will more than pay for the construction cost. There will be additional efficiency in terms of security and upkeep expenses if the privileged class is housed together rather than in separate properties. The symbolic benefit is paramount. Citizens will be far more compliant if they feel that the taxes they pay to the exchequer are used for nation building rather than finance the opulent lifestyle of the elite.

The threat of debt default looms in the aftermath of Covid. Loan moratoriums and soft loans while welcome may not be adequate to bail out private business. This is the time when government may explore functioning as a venture capitalist or an angel investor and extend equity finance to potential businesses. It liberates private enterprise from the burden of debt service and the exponential upside due to value accretion of eventual successful ventures, might result in disproportionate gain for the state. Perhaps it’s an idea whose time has come.

The FM is faced with the most challenging and uncertain environment. In times of deficient revenue, India yearns for increasing expenditure on account of health, education, sanitation, urban development, defense, infrastructure, employment generation and economic growth. It might be useful to remember JFK’s evocative lines – rising tide raises all boats. The answer to myriad problems is in economic growth and temporary fiscal prudence aside, government may be well advised to spend its way out of trouble.

Often vexed economic problems don’t have a simple response. They say that to choose between right and wrong isn’t difficult. The challenge really is to select the most suitable amongst several seemingly right options or the less debilitating from the undesirable ones. Isn’t that what governance is all about?       

(The article has been written by Tarun Gupta)

Posted By: Aalok Sensharma