by Sher Singh Sangwan
Vision of Budget
The Finance Minister (FM), at the outset of her Budget speech, has spelled out that the Budget 2019-20 attempts to align its goals with the Vision for the decade, that is, “take the economy to US$ 5 trillion level” from US $ 2.7 trillion in 2018-19. The strategic focus areas outlined are expediting investment for physical and social infrastructure; Digital India, MSMEs, Start-ups, defense and other manufacturing, water management, self-sufficiency and export of food-grains, pulses, oilseeds, fruits and vegetables. But to achieve it by 2024, the Gross Domestic Product (GDP) will require an annual compound growth rate (ACGR) of about 13 per cent which may be unrealistic; that is why the FM has called it the decadal vision. Even to reach US $ 3 trillion economy by April 2020, the GDP has to grow around @11 per cent whereas the ACGR was 7.7 per cent during the previous five years. Given the average capital output ratio of about four, an investment @44 per cent is required in 2019-20 which has to be sustained and increased to achieve the target of US $ 5 trillion economy by 2024. The domestic saving is around 30 per cent and to achieve the desired investment a lot of resource mobilisation is sine qua non.
Macro Policies Emphasised
The foremost emphasis is on connectivity through industrial corridors, dedicated freight corridors, Bhartamala and Sagarmala projects, Jal Marg Vikas and UDAN Schemes. These schemes will improve logistics tremendously and reduce the cost of transportation and increase the competitiveness of domestically produced goods. The Budget also envisaged that India may create highly skilled jobs by entering into aircraft financing and leasing activities and Maintenance, Repair and Overhaul (MRO) for developing a self-reliant aviation industry with suitable policy support from the government. Besides, it will focus on a comprehensive restructuring of the National Highway Programme and development of inland waterways to shift a portion of inland cargo movement from road and rail.
It is estimated that the Railway Infrastructure would need an investment of Rs 50 lakh crores between 2018-2030 whereas the present capital expenditure of the Railways is around Rs 1.5 to 1.6 lakh crores per annum. Therefore, to unleash faster development, the Budget proposes Public-Private Partnership for completion of tracks, rolling stock manufacturing and delivery of passenger freight services. To take the connectivity infrastructure to the next level, the Budget proposes to ensure power connectivity—One Nation, One Grid—for making power availability to the States at affordable rates. The recommendations of the High Level Empowered Committee (HLEC) on retirement of old and inefficient plants, and addressing low utilisation of gas plant capacity due to paucity of natural gas, will be expedited for implementation. Besides the structural reforms, a package of power sector tariff and structural reforms would soon be announced.
Mobilsation of Non-Budgetary Resources
The FM is well aware that investment-driven growth requires access to low cost capital and the estimated investment requirement may be averaging Rs 20 lakh crores every year (US $ 300 billion). In this regard, the Budget gives the main emphasis on mobilisation of private capital especially for social infrastructure, through the following measures:
i. A Credit Guarantee Enhancement Corporation to be set up by the RBI in 2019-20 to expedite credit.
ii. An action plan to deepen the market for long-term bonds including corporate bond repos, credit default swaps etc., with specific focus on the infrastructure sector.
iii. Foreign Institutional and Portfolio Investors (FIIs/FPIs) will be permitted to invest in Debt Fund for Infrastructure. Further, the low level of Corporate Debt markets will be deepened through tri-party repo market in Corporate Debt securities and RBI/SEBI will enable stock exchanges to allow AA rated bonds as collaterals.
iv. The minimum public shareholding in the listed companies will be raised through SEBI from the current threshold of 25 per cent to 35 per cent.
v. To encourage a harmonised and hassle-free investment by FPIs, their existing Know Your Customer norms will be rationalised safeguarding the integrity of cross-border capital flows.
vi. To make capital markets closer to the masses for inclusive growth, a social stock exchange—under the regulatory ambit of Securities and Exchange Board of India (SEBI)—for listing social enterprises and voluntary organisations working for the realisation of a social welfare objective.
vii. To get retail investors to invest in treasury bills and securities issued by the government, the RBI will ease it with institutional development using stock exchanges.
viii. FDI inflows into India slid by 13 per cent in 2018, the third consecutive annual decline as per UNCTAD. To make India a more attractive FDI destination, the GOI will examine further opening up of FDI in aviation, media (animation, AVGC) and insurance sectors in consultation with all stakeholders.
ix. To mobilise more from global savings, India will organise an annual Global Investors Meet, with National Infrastructure Investment Fund (NIIF) as the anchor, to get all top global players from corporate honchos, pension/insurance/sovereign wealth funds and techno-logy/venture funds.
x. The statutory limit for FPI investment in a company may be raised from 24 per cent to sectoral foreign investment limit with option given to the concerned corporate to limit it to a lower threshold.
xi. With a view to improve NRIs' investment in Indian equities, it is proposed to merge the NRI-Portfolio Investment Scheme Route with the Foreign Portfolio Investment.
xii. To commercially harness India's technology and ability to launch satellites at globally low cost, a Public Sector Enterprise, namely, New Space India Limited (NSIL) has been incorporated by the Department of Space to tap more income from its research.
All the above initiatives indicate that the Budget gives top priority to private borrowing for additional resources with special emphasis on globalisation sovereign bonds too through FDI and FPI bonds whereas the budgetary efforts through taxation are as usual feeble as discussed ahead.
Direct Tax Proposals
Among the direct tax efforts, the middle class will contribute as there is no increase in the exemption limit or decrease in the slab rates despite the inflation overtime. To further broaden the tax rates, return filing will be must for those depositing more than Rs 1 crore in current account, spending above Rs 2 lakh on foreign travels, paying electricity bills of Rs 1 lakh and above and claiming capital gains tax for investment in house during the year. Those persons/enterprises drawing above Rs 1 crore cash in current account during a year will pay a tax of two per cent. The rich individuals, in income slabs of Rs 2 to 5 crores and above Rs 5 crores, have been levied additional tax of about three per cent and seven per cent through surcharge but the Corporate tax has been brought down to 25 per cent for 99.3 per cent of the companies (turnover upto Rs 400 crores) to compensate the rich.
All these proposals are inadequate tax efforts to take the economy to US $ 5 trillion. The Budget attempts take a small pie from the rich (about Rs 1200 crores) despite the fact that India is ahead of all countries in income and wealth inequalities. According to a global report by the International Labour Organisation (ILO), in 2017, the top 10 per cent in India take 70 per cent of labour income as compared to 49 per cent at the global level. It results in a high level of wealth inequality too. In terms of wealth, inequality gets worse, says oxfam, with India's top one per cent having 73 per cent of the country's wealth, which was about 37 per cent in 2000. Thomas Picketty, during his visit to India in 2016, has warned that inequality may be one of its biggest challenges. Acting opposite to these suggestions, the GOI takes proud in documenting that the wealth tax was abolished in 2016-17; it was imposed in 1957 whereas it should have been taken as an opportunity to tax the rich instead of globalisation sovereign bonds and putting the economy at foreign exchange risk like the crisis of Asian countries in 1997. Besides, re-introduction of inheritance tax was in news before the Budget as its alternative estate duty was abolished in 1985 (imposed in 1953) by the then FM, V.P Singh. Both of these taxes may have taken a share of idle money with the rich for contributing toward capital formation. It is to be noted that both these taxes are more progressive than the surcharge on income which is earned whereas wealth is mostly inherited. Moreover increasing wealth inequality is the genesis of all social and political evils. It is aptly described by a Chanakya Niti-Shalok. “Yovnum (Muscle power), Dhansampati (wealth), Prabutavam (high posts) and A-vivekta (lack of knowledge);—- Ekai Ekam Api Anarathay, kimu yatara Chaturthyam”which means excess of any one of the above in any family takes that towards evils and if more than one of them are possessed by the family than there is no limit of socially undesirable activities its members may indulge in.
Indirect Tax Efforts
The custom duties have been increased to protect domestic industries in cashew kernels, Chemicals, Plastics, Rubber, newsprint, books, ceramic tiles, marbles, metals and electronic goods. The custom duty on gold and silver increased from 10 per cent to 12.5 per cent. The excise duties are under the purview of the GST but it is proposed to increase basic excise duty on cigarettes and other tobacco products as well as special additional excise duty on petrol and diesel. To enhance the GST compliance, electronic invoice system will be introduced. Hence, the increases in custom duty and excise tax of the above and some other items mentioned in the Budget have strong rationale as the items identified are not for mass consumption. Whereas the customs duty for items used for electric vehicle and renewable energy are lowered to promote these alternative sources so as to reduce the import bill.
Dr Sangwan is a former Professor SBI Chair at the Centre for Research in Rural and Industrial Development (CRRID), Chandigarh. He is also the General Manager of NABARD in Rohtak.