The annual Union Budget is a subject of unique importance in the working of any parliamentary democracy such as India’s. The Budget, with one sweep, has the potential to churn out a stronger economy, and yet on the other hand, an ability to carve out a bearish effect on the markets. 2019’s interim budget was a departure from tradition in more ways than one; the general principle that an interim budget must not bring about macroeconomic instability was thrown up for a toss. The interim budget drew widespread condemnation for pushing populism over fiscal prudence. This time, however, Nirmala Sitaraman did not leave gaping voids, and played a spectrum of cards that could potentially have long-term ramifications on the economy as a whole.
The 2019 budget presents many positives to take away, which would over time simplify and streamline operations. The government’s pet project, Aadhaar, was in particular highlight. Sitaraman’s maiden budget proposed to make the Aadhar and PAN interchangeable when it comes to filing tax returns. As such, those who do not have access to a PAN card can quote the Aadhaar number wherever deemed necessary. Furthermore, NRIs who arrive in India will from henceforth be issued an Aadhaar card without the existing mandatory waiting frame of 180 days. This would both reduce the bureaucratic hurdle and provide Aadhar-linked benefits to the NRIs without a rather long cooling period. Yet, in its drive to push the Aadhaar as a proponent of unity, the government must ensure that all deserving citizens are provided with an Aadhaar card, and not ostracized from public records. At present, several inconsistencies with the Aadhaar have been earmarked. The administration would do well to lend a ear to the concerns and fix the issues as early as possible.
A focus on a greener India was also on the government’s mind, as it proposed to slash the higher taxation slab of 12% on Electric Vehicles to the base 5%. Sitaraman claimed that the government had moved the GST council to put into effect the change as was mandated above. In consonance with the decision, it was also announced that tax rebates upto ₹1.5 lakh would be awarded for interest paid on loans to buy the electrically-operated vehicles. The move is commendable as it puts India at a head-start when it comes to ensuring cleaner mobility. However, it will not solve India’s auto-sector woes. Neither does it seem pragmatic to throw in bonanzas when the average cost of an electric vehicle is beyond the means of the Indian middle class, which for long has been burdened. India, like the European Union, has decided to not put a compulsory cap on manufacturers to dole out a percentage of their products in the electric vehicles sector. The decision to provide a sudden impetus to electric vehicles proved to be a jolt for many leading analysts and businessmen, who had expected sops elsewhere.
When it comes to the banking sector, there were several eye-grabbing headlines that poured in throughout the day. The government announced a ₹70,000 crore capital fund to replenish public sector banks. This was done to boost credit availability in the midst of an ongoing liquidity crisis. Non-Banking Financial Companies (NBFCs), which were in a difficult spot, in essence got a breather from the budget. The government agreed to provide a partial guarantee to all the State banks for the acquisition of ₹1 trillion worth of highly-rated assets from NBFCs. A revival in the fortunes of NBFCs would cascade into higher credit facilities for the MSME sector, ultimately equating to a stronger output and growth potentialities. Additionally, Sitaraman hailed the Insolvency and Bankruptcy Code (IBC 2016), the promulgation of which had led to the recovery of over ₹4 lakh crore worth of bad loans over the course of the preceding four years. Yet, the issue of a ₹70,000 crore dividend brought up passionate sentiments of the issue of the RBI’s independence as a central bank, which might possibly be under threat for the first time in decades.
The Modi 2.0 government fulfilled its electoral emphasis on the social sector, with capital outflows in other sectors not hampering the grants alloted for the sector. The total expenditure on Centrally-sponsored social sector schemes was pegged at ₹3.31 trillion. A marginal increase in allocations on all fronts were observed in comparison to the interim budget that was presented earlier this year. Subsidies in LPG cylinders and houses for the poor were retained. Under the Pradhan Mantri Awas Yojana (PMAY), spending on rural housing has been valued at ₹25,853 crores. Pradhan Mantri Gram Sadak Yojana (PMGSY), which was a feature mention in Sitaraman’s speech, was alloted ₹19,000 crores for the purpose of establishing rural connectivity through a better road network. Pradhan Mantri Shram Yogi Mandhan Yojana, a new scheme that was shown the red carpet in the interim budget, would now cover 30 lakh workers, each of whom are eligible to receive ₹3,000 as a monthly pension after they turn sixty.
The 2019 Budget also drew a fair share of flak and criticism for a wide number of reasons. Start-ups and investors, however, were left a tad bit disappointed. The speech declared that “… start-ups and their investors who file requisite declarations and provide information in their returns will not be subjected to any kind of scrutiny in respect of valuations of share premiums”. The Budget mentioned that a mechanism of ‘e-verification’ would be put in place to establish the identity of the investors and the source of their funds, without providing an approximate timeline for its rollout and implementation. This provided little clarity and was ambiguous, at best. Furthermore, in what could possibly signal bureaucratic interference, the government spoke of a ‘special administrative arrangement’ for prompt redressal of grievances and pending assessments of newfangled firms.
When it came to corporate tax, the government said that companies with an annual turnover of ₹400 crore or less would now fall under the 25% tax slab, as compared to the ₹250 crore cap earlier. Many critics slammed the government for providing reliefs to a specific pie in the industry rather than bringing about significant changes in the tax structure for the corporate world. For a government that relies on hyper-nationalistic sentiments and openly flaunts jingoistic tendencies, no specific mention of the Defence sector was indeed a surprise. Also, when the job distress is at its peak (CMIE, December 2018 report), there were no specific measures that were adopted by the present dispensation to ease the aching pain that jobseekers across the country felt. In what could generate a lot of political friction, additional levies were planted on diesel and petrol supply to the tune of ₹1 per litre. Most interesting of all, however, was the government’s “expectation” of a higher dividend payout from the RBI- bringing back the thorny topic on the autonomy and independence of the RBI into the forefront.
The annual budget that was presented on the 5th of July seemed more expedient when it comes to governmental spending and providing sops. However, contentious issues and fears were not allayed by the government, thus evoking several questions. The fiscal deficit target was set at 3.3%, and the government has stated fiscal consolidation as one of its primary agendas that it seeks to pursue. The deficit margin is in close proximity to the NK Singh Committee’s recommendations on the FRBM Act, 2003, which proposed a fiscal deficit of 3% till 2020. In all probability, though, the deficit will exceed 3.3%, and it will be an extremely hard job for the men in North Block and beyond to contain the deficit at the proposed figure. The 2019 budget, which was expected to be a high-octane event, was rather meek by its standards. Amidst the fanfare of the cricketing season, perhaps Anand Mahindra adeptly summarised it when he remarked that all that Nirmala Sitaraman took was ‘steady singles’, when all were looking forward for the ball to be hit out of the park!