Some lower rate income taxpayers might be happy but what else exactly did this budget achieve? Nothing really
The Bombay Stock Exchange dropped nearly 1000 points a couple of hours after Finance Minister (FM) Nirmala Sitharaman finished delivering her Budget speech. As far as percentage drops go, there have been worse single-day collapses in the Indian capital markets but this time even corporate titans and financial experts were far from divided on the Budget. There was a universal feeling that it had missed the opportunity for big bang structural reforms that could have given a sense of direction and purpose to the economy. Of particular irritation was the sense that the Government did not acknowledge that India is in the midst of an economic crisis and it was telling to hear even talking heads sympathetic to the government feeling a bit down after the speech. And what a speech it was; even with the standard deduction for couplets by classical poets, it was just short of three hours. Possibly that was the biggest disappointment with the Budget, a lot of talk but not all that much action. The headline that almost everyone will concentrate on is the rejig in personal income taxes, a slight reduction in income tax slabs which will help those Indians who earn less than `15 lakh a year. But there is a massive rider there, the old income tax regime remains because the new tax slabs allow for fewer exemptions. So effectively, older taxpayers who make tax-linked investments will most likely not shift away from the existing tax regime. In fact, while the FM spoke about “simplification” of the income tax system, it is likely that most taxpayers, other than those in the lower slabs, will have to sit down with professionals and work out how best to structure their taxes. The Government has long spoken about the need to rationalise income taxes and reduce exemptions and that is an achievable ideal. If that needed to be done, a more radical change in tax slabs would have been in order than having a confusing and parallel income tax system in place. Removing exemptions, including most under Section 80, medical insurance and house rent allowance among others, will almost ensure that few, if any, Indian tax payers will move to the new regime. That said, the abolishing of dividend distribution tax is a net positive for investors, albeit resident Indian promoters and high net-worth individuals might be desperately unhappy as their dividends will now be taxed at their regular tax rates. Then there is the fiscal deficit, with several economic experts openly questioning the Government’s maths. It is very possible that it can mop up funds from divesting its share in several public sector units. The FM said that the Government would divest a portion of its holding in Life Insurance Company of India (LIC) but given that the overall disinvestment process has been haphazard under the Narendra Modi government, there are open questions about how this will be done.
While negativity will take us nowhere, this is the first budget in several years where Indian industry has been so highly critical of the Government. Of course, several industrialists and bankers realise that Sitharaman has to walk a tightrope between maintaining fiscal prudence and the profligacy of overspending. The latter has been relatively constrained. There are some interesting new spends such as investment in clean air, which are welcome. However, as we close the chapter on yet another budget, there is this overwhelming sense that this could have been so much more. This is not just a bad budget, it is a disappointing one.
(Courtesy: The Pioneer)