At long last, ending six months of suspense, Union Budget 2019 is now before us. The Economic Survey 2018-19 had advised the Government to follow the path of ‘high-growth’ East Asian economies i.e. achieve growth through a “virtuous cycle” of savings, investment and exports with investment being the key driver. In a significant departure from the Budgets presented by Mr Arun Jaitley, the present Budget echoes much of the thinking of the Economic Survey. The Budget retains the provisions of the Interim Budget, but the soft hue of the Interim Budget, no doubt necessitated by pre-election political compulsions, is definitely missing

In a longish Budget speech of 2 hours 17 minutes, Ms Sitharaman began by outlining her Government’s vision of making the Indian economy a $ 5 trillion economy by 2022. She also listed the Government’s achievements on the social and financial fronts. Bad news was to follow, for the rich and poor alike. Fresh duties have made petrol and diesel costlier by more than Rs. 2.20 per litre. Income-tax surcharge on individuals and Hindu Undivided Families, earning between Rs 2 crore and Rs 5 crores has been increased by 3 per cent to make it 25 per cent. Such persons would now be taxed at 30 per cent (tax) + 7.5 per cent (surcharge) + 1.6 per cent (Health and Education Cess) making for a tax rate of 39.1 per cent. Similarly, surcharge for those earning above Rs 5 crore has been increased by 7 per cent to 37 per cent, making for an effective tax rate of 42.8 per cent.

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On the other hand, companies with turnover up to Rs 400 crore would suffer tax only at 25 per cent with a surcharge of 5 per cent if their income exceeds Rs 10 crore. One only hopes that the high rate of income-tax on individuals would not hasten the flight of High Networth Individuals (HNIs) from our shores.

The Budget aims to ramp up investment in affordable housing by offering interest deduction up to Rs 1.5 lakh, in addition to the Rs 2 lakh given earlier, for investment in a house costing up to Rs 45 lakh. Foreign investment also receives a fillip, units in International Financial Services Centre (IFSC) would have a tax holiday for ten years additionally such units would be exempted from paying Dividend Distribution Tax with retrospective effect. Eligibility conditions for special taxation provisions (read no tax) for Offshore Funds have been relaxed. Interest accrued on Off-shore Rupee Denominated Bonds has been made exempt. Investment by FIIs and FDIs in debt securities in infrastructure debt funds is to be allowed. Now, in addition to Category I AIFs, Category II Alternative Investment Fund (AIFs) would also pay no tax on transfer of shares above their face value.

Customs Duty on gold and other precious metals has been increased by 2.5 per cent to 12.5 per cent, Custom Duty on split ACs has been doubled to 20 per cent and books would attract Customs Duty of 5 per cent. With the increase in duty, one fears that gold smuggling may again attract international crime syndicates. Also, combined with rising fuel prices there is a risk of the Budget promoting inflation. Import of defence equipment would no longer attract Customs Duty, smoothening the way for big ticket weapons imports.

Production of Electric Vehicles is set to be incentivised with a reduction in GST from 12 per cent to 5 per cent, reduction of Customs Duty on key components and a Rs 1.5 lakh income tax deduction on interest payments on loans taken for purchase of EVs. Start-ups may fare better with funds raised by startups not being subjected to scrutiny by the I-T department.

A sum of Rs 70,000 crore would be provided for re-capitalisation of Public Sector Banks and in the next five years 1.25 lakh kilometres of roads would be upgraded at a cost of over Rs 80,000 crore. There is also a plan to invest Rs 50 lakh crore in Railway infrastructure over the years. As for funding, dis-investment of PSUs is budgeted to provide Rs.1,05,000 and there is a hint that RBI would have to part with some of its accumulated funds. Tax revenues are expected to rise from Rs19.19 lakh crore to Rs 24.61 lakh crore ~ an increase of 28.24 per cent, clearly an uphill task. Last year too, there was a shortfall of about 11.3 per cent in the revenue target. It would definitely help everyone if revenue targets are fixed in consultation with revenue collectors, keeping in mind the revenue potential for that particular year. The Government should then plan its spending accordingly. This is what all prudent households across the world do. All Governments believe that results would be proportionate to the money spent by them but poor execution and monitoring belie this assumption. Rather, increasing the size of the budget puts immense strain on the revenue collecting departments like Income-tax which manifests itself in ‘tax terrorism’ that draws opprobrium from the Courts and public. In the last financial year, despite all efforts, revenue collection fell short of target by more than Rs 1,70,000 crore i.e. 11.3 per cent. It was only through some imaginative accounting and Extra-Budgetary Resources (EBR) ~ borrowings by PSUs like FCI, HUDCO and REC from National Small Savings Fund that the Fiscal Deficit target was met.

In the last five years, there has been no disinvestment to private parties, rather the Government has fobbed off one PSU on another. One only hopes that Ms. Sitharaman would not follow the wrong precedent set by her predecessor. The present Budget has added four major schemes to the already existing 118 such schemes. The FM proposes to spend Rs 12.03 lakh crore on these schemes. This is the trend of the last many budgets. Old schemes are renamed, Schemes are merged into one another, Schemes are introduced/discontinued, with no study on the outcome or the reason for their success or failure. Surely, tax-payers deserve to know the fate of their hardearned money which has been splurged on what seems to be unproductive schemes. The business community does not seem to be unduly enthused with the Budget; the Sensex has gone down 400 points after initial gains. Other provisions in the Budget mostly pertain to rationalisation like including online payments as a permitted mode of payment and substituting Aadhaar for PAN in high value and other transactions.

It would be an understatement to say that the Finance Minister had a tough job in framing the Budget. A falling rate of GDP growth, increasing unemployment, agricultural distress, failing businesses are some of the problems bedevilling our economy which the FM was supposed to address through a single document. No learned economist paused to think whether this was possible at all! Additionally, disputed statistics doing the rounds have muddied the waters to the extent that no one, not even officials of the Finance Ministry, may be fully aware of the state of our economy. This would have added to the difficulties faced by the FM in Budget formulation. The obsessive security associated with Budget preparation, where dozens of Finance Ministry officials are sequestered in North Block days ahead of the presentation, has a huge downside in that there is no informed discussion on the proposed budgetary provisions. Ideally, the Budget should have a bottom-up approach where the needs of the smallest unit say, sub-division level are aggregated. Unfortunately, budget proposals are finalised in the rarefied atmosphere of North Block, far removed from the persons and places for whose benefit the whole exercise is undertaken. One wishes well for the Budget which carries forward the Government’s agenda of a less cash digital economy. We only wish for better implementation which alone could actualise the objectives of the Budget.