Good to See No Ob­vi­ous Free­bies, Deficit at 3.2% is Ac­tu­ally Not Bad

Black money will recom­mence its jour­ney, this time in dol­lars and valu­ables; ef­fi­ciency, not govt dik­tat, should boost dig­i­tal trans­ac­tions

The Economic Times - - Front Page -

gres­sively into sim­pli­fy­ing the tax regime, laws and rules, as that is the only long term so­lu­tion to black money.

On the con­ser­va­tive and care­ful el­e­ment, this Bud­get scores quite well, and keep­ing the bud­get deficit at 3.2% of the GDP rather than 3% en­vis­aged ini­tially, is ac­tu­ally not bad. It gives the gov­ern­ment some flex­i­bil­ity to spend a bit more, but not too much. It also en­ables greater al­lo­ca­tions on de­fence and in­fra­struc­ture that are crit­i­cal.

On UP, the free­bies are not so at­trac­tive or ex­plicit as were ex­pected, and again it is nice to have a Bud­get that is not grossly tar­geted at a state.

As an aside, the re­liance on Nabard for most farmer- re­lated pro­pos­als rather than de­part­men­tal ma­chin­ery is quite in­trigu­ing — the PM, it ap­pears, wants to di­rectly im­ple­ment var­i­ous agri­cul­ture pro­pos­als rather than go through state gov­ern­ments.

Fi­nally on sim­pli­fi­ca­tion of tax­a­tion rules and laws, the Bud­get pro­pos­als are not so clear and, apart from a few, quite harm­ful. They take us back a year or two at least. But given that black money is an outcome of poor laws and their im­ple­men­ta­tion, this com­po­nent achieves spe­cial im­por­tance.

A strange no­tion is do­ing the rounds in this gov­ern­ment that cash is uni­ver­sally bad. Se­nior bu­reau­crats have also been heard claim­ing that dig­i­tal trans­ac­tions are cheaper than cash trans­ac­tions, and how black money can be bet­ter mon­i­tored by hav­ing them.

In re­al­ity how­ever, for low­value trans­ac­tions dig­i­tal is cur­rently much more ex­pen­sive than cash. Forc­ing dig­i­tal on In­dia will harm us all, make for a higher cost econ­omy, and harm the gov­ern­ment po­lit­i­cally. Many in the in­for­mal sec­tor have re­verted to cash, the 3-5% trans­ac­tion fees of dig­i­tal pay­ments was too much for them. Dig­i­tal pay­ments through bank­ing chan­nels are ad­mit­tedly cheaper for the mer­chant, but then the bank bears those costs. Let dig­i­tal grow, but due to its ef­fi­ciency and not be­cause of gov­ern­ment dik­tat or ar­ti­fi­cial in­cen­tives. Pro­pos­als such as re­duc­tion in de­ductible cash trans­ac­tions to 10,000 there­fore can­not be wel­comed. No doubt there are some pro­pos­als in the right direction, re­duc­tion of hold­ing pe­riod for long-term cap­i­tal gains, is one ex­am­ple. But there are few such ones. Mostly the direct tax code would be­come longer and more com­plex af­ter this Bud­get. This means black money will recom­mence its jour­ney in In­dia, ex­cept this time it will not be in desi cash, but in valu­ables and even US dol­lars. But thank­fully, our macro con­di­tions should be fine.

Forc­ing dig­i­tal on In­dia will harm us all ...Let dig­i­tal grow, but due to its ef­fi­ciency and not be­cause of gov­ern­ment dik­tat or ar­ti­fi­cial in­cen­tives

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