READY, GO, STEADY... The Safe Bet Per­form­ing Af­ter the a Mov­ing Big Gam­ble Bal­anc­ing Act

The Economic Times - - The Edit Page - Su­gata Ghosh Stu­art P Milne

Till now, the daily wage labourer who was forced to forego his earn­ings, or the has­sled homemaker who stood in the ATM queue, drew com­fort from the be­lief that the rich were suf­fer­ing. Now, the ju­nior staff in work­places can re­joice at the thought that their bosses in cold cu­bi­cles will have to cough up more tax.

If de­mon­eti­sa­tion had brought to the fore the con­trast be­tween the haves and have-nots, the Bud­get has only reaf­firmed the dif­fer­ences be­tween the haves and the bet­ter-offs. The cru­sade to tax the rich be­gan a year ago when those earn­ing more than .₹ 1 crore were asked to pay more.

The gov­ern­ment has now hit upon a more con­ser­va­tive def­i­ni­tion of ‘the rich’. While the prime min­is­ter wages a war against ill-got­ten wealth by scrap­ping notes, the fi­nance min­is­ter has nar­rowed the bat­tle to ex­tract ex­tra tax from all those who earn more than .₹ 50 lakh a year.

Arun Jait­ley claims he would make more peo­ple pay tax be­cause so many of them es­cape the tax­man to­day. What, how­ever, he pro­posed was to make the peo­ple who pay the most in taxes fork out more.

There is no overtly pop­ulist scheme in the Bud­get. Yet, it is po­lit­i­cal. Af­ter the cash chaos of de­mon­eti­sa­tion, low­er­ing cor­po­rate tax would have sent out a wrong sig­nal be­fore cru­cial state elec­tions. Un­der­stand­ably, Jait­ley avoided it, though he had promised a ra­tio­nal­i­sa­tion of cor­po­rate tax in 2016. How­ever, his de­ci­sion to re­lax the rules on min­i­mum al­ter­nate tax would ben­e­fit power and road con­struc­tion com­pa­nies.

It’s a Bud­get that tries to heal the scars of de­mon­eti­sa­tion, bat­tle the stigma of job­less growth and widen Naren­dra Modi’s po­lit­i­cal sup­port base — though not ex­actly the tax base of the econ­omy. The FM has warned that those who de­posited un­ex­plained cash would not have the last laugh. But his ex­pec­ta­tion from the se­cond in­come dec­la­ra­tion scheme is mod­est while one has to wait to fig­ure out whether the ban on cash deals above .₹ 3 lakh would cast the tax net wider.

In the first round of de­mon­eti­sa­tion, the coun­try’s schem­ing money laun­ders have had an up­per hand when they fun­nelled their hid­den cash into bank ac­counts. It’s for Jait­ley and his team to win the last round by en­sur­ing that a large slice of this money flows into the gov­ern­ment ex- che­quer and not back into ti­joris of cash hoard­ers.

The Bud­get once again tries to drive home the point that the men in Delhi do not rep­re­sent a ‘suit-boot ki sarkar’, but whose hearts go out to the aam admi. It at­tempts to please the con­stituen­cies that mat­ter with­out top­pling the ap­ple­cart: low­er­ing tax by 5% on small and medium busi­nesses, which bore the brunt of note ban; raising the dis­pos­able in­come of mil­lions of low- and mid­dle-in­come house­hold by .₹ Rs 1,000 a month.

By keep­ing the tax on stock mar­ket gains un­touched, the min­is­ter has dis­pelled the worst fears of traders and in­vestors. By rein­ing in the fis­cal deficit num­ber, he hopes to send a re­as­sur­ing sig­nal to rat­ing agen­cies and for­eign port­fo­lio in­vestors in eq­ui­ties as well as bonds. And fi­nally, many fam­i­lies in smaller towns may dream of own­ing a home while small builders can en­joy tax re­lief and hire un­skilled labour­ers thrown out of jobs.

When Cor­po­rate In­dia is hes­i­tant to build new fac­to­ries, af­ford­able hous­ing is among the few un­tapped mar­kets that can draw in­vestors.

An equally over­whelm­ing sig­nal, on the other hand, is to im­pose new tax on the ul­tra­rich. For in­stance, pro­mot­ers of busi­ness houses who hold their shares through pri­vate, non-char­i­ta­ble trusts will now pay 10% tax on the div­i­dend they re­ceive from com­pa­nies. So far, they were spared.

In last year’s Bud­get, the FM had slapped the same tax on div­i­dend of over .₹ 10 lakh earned by in­di­vid­u­als, Hindu un­di­vided fam­i­lies and firms. In 2017, the min­is­ter took a step for­ward to cover the trusts.

The vot­ers of Ut­tar Pradesh and Pun­jab may have al­ready made up their minds. But an un­ad­ven­tur­ous fi­nance min­is­ter has done what he could to win over many by promis­ing those who count and up­set­ting those who don’t. In­deed, if de­mon­eti­sa­tion was Modi’s big po­lit­i­cal gam­ble, the Bud­get comes across as a safer bet. The larger theme for Bud­get 2017 has been that of cal­cu­lated re­straint and mea­sured bal­ance. In line with its fo­cus on trans­form­ing, energising and clean­ing In­dia, it saw mea­sures be­ing an­nounced to ben­e­fit farm­ers and the weaker sec­tions of so­ci­ety while also al­low­ing mea­sures to re­vive in­vest­ments and in­fra­struc­ture.

Fi­nance min­is­ter Arun Jait­ley ar­tic­u­lated that the pace of re­mon­eti­sa­tion has picked up and that the ef­fects of de­mon­eti­sa­tion will not spill over to the next year, thereby al­lay­ing any anx­i­eties over a sig­nif­i­cant im­pact on the GDP. While the ex­tent of this im­pact will un­ravel in the months to come, it would be safe to as­sume that GDP growth is likely to be sub­dued in FY18. How­ever, this has led to sur­plus liq­uid­ity in banks that will lead to low­er­ing of in­ter­est rates.

Pur­su­ing its com­mit­ment to clean­ing up black money and nudg­ing the econ­omy to­wards ‘less cash’ and dig­i­tal plat­forms, the ban­ning of cash trans­ac­tions above .₹ 3 lakh will lead to greater trans­parency and help curb tax eva­sion. A tran­si­tion to­wards a dig­i­tal econ­omy will aid trans­parency across pro­grammes and poli­cies, and help up­hold the gov­ern­ment’s hard won cred­i­bil­ity.

Jait­ley­haslargely stuck to his stated fis­cal con­sol­i­da­tion road map by peg­ging fis­cal deficit at 3.2% of GDP, a mar­ginal de­vi­a­tion from the 3% tar­get set ear­lier. This em­pha­sis on fis­cal pru­dence along with the fact that he re­frained from tak­ing re­course to ‘es­cape clauses’ in­di­cates a con­tin­ued com­mit­ment to grad­ual fis­cal con­sol­i­da­tion. This slight de­vi­a­tion in the tar­get fis­cal deficit is nec­es­sary to fund devel­op­ment ex­pen­di­ture.

A key im­ped­i­ment in eco­nomic growth has been job cre­ation. The Skill Ac­qui­si­tion and Knowl­edge Aware­ness for Liveli­hood Pro­mo­tion Pro­gramme (Sankalp), a .₹ 4,000-crore pro­gramme aims to pro­vide mar­ke­trel­e­vant train­ing which, if im­ple­mented ef­fi­ciently, should aid the up­skilling of youth and supp­prt pro- grammes like ‘Make in In­dia’.

In­dia’s jour­ney to­wards be­com­ing a global com­mer­cial hub was pre­vi­ously ham­pered by a largely in­ef­fec­tive ar­bi­tra­tion regime that was af­flicted with var­i­ous prob­lems in­clud­ing those of high costs and de­lays. Es­tab­lish­ing the pro­posed res­o­lu­tion frame­work un­der the Ar­bi­tra­tion and Con­cil­i­a­tion Act to re­solve dis­putes in pub­lic con­tracts in the in­fra­struc­ture sec­tor will help change the way for­eign in­vestors view In­dia.

Up­grad­ing the in­fra­struc­ture seg­ment has been a strate­gic ob­jec­tive in achiev­ing sus­tain­able eco­nomic growth. Break­ing from the colo­nial legacy of hav­ing a sep­a­rate Rail­way Bud­get, the FM, for the first time in nearly a century, pre­sented the Rail­way Bud­get along with the Union Bud­get. Recog­nis­ing the scale of chal­lenges fac­ing the In­dian Rail­ways, the gov­ern­ment’s move to­wards of­fer­ing end-to-end trans­porta­tion so­lu­tions for com­modi­ties to ar­rest fall­ing freight rev­enues will help it be­come more com­pet­i­tive as com­pared to other al­ter­nate modes of trans­port.

On the bank­ing side, the gov­ern­ment has sig­nalled its in­ten­tion to get tough on eco­nomic of­fend­ers who have bur­dened In­dia’s bank­ing sys­tem with bad loans. How­ever, there has been no con­crete guid­ance with re­gards to manag­ing the quan­tum of non-per­form­ing as­sets (NPA) that has stressed the sec­tor. The pro­posed new law that will al­low agen­cies to con­fis­cate do­mes­tic as­sets of eco­nomic of­fend­ers who flee the coun­try will pro­vide more teeth to banks and agen­cies in cases of de­fault. How this as­pect de­vel­ops in the near fu­ture will be keenly mon­i­tored. The FM pro­vid­ing clar­ity re­gard­ing tax­a­tion of masala bonds is wel­come.

A ma­jor an­nounce­ment has been aimed at pro­mot­ing trans­parency and ac­count­abil­ity in po­lit­i­cal fund­ing. The pro­posal to­wards en­abling is­suance of elec­toral bonds is sin­gu­larly unique in this as­pect and will work to­wards cre­at­ing a for­malised struc­ture to­wards po­lit­i­cal fund­ing.

This Bud­get has been a bal­anc­ing act in main­tain­ing fis­cal con­sol­i­da­tion, spurring eco­nomic growth and cre­at­ing a trans­par­ent ecosys­tem in ev­ery sphere. Fa­cil­i­tat­ing in­creased ease of busi­ness has been an on­go­ing sen­ti­ment across var­i­ous mea­sures and poli­cies. This Bud­get has been a de­fin­i­tive step in the right di­rec­tion.

The writer is CEO, HSBC In­dia

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