The macro does not gel with the micro

By Moderator July 6, 2019 12:47


Pulapre Balakrishnan, Professor, Ashoka University and Senior Fellow, IIM Kozhikode expressed his views on Budget

Important analysis

  • The maiden Budget presented by Finance Minister Nirmala Sitharaman was much looked forward to partly because she is the first woman to hold this post full time, an achievement for our democracy.
  • Five key points in the Budget are to be highlighted
    • Bank capitalization;
    • Rural electrification to be completed by 2022;
    • A final push for water and sanitation, making India open defecation free by October 2 this year;
    • Encouraging solar power usage; and
    • Tax-related changes.
  1. On Bank capitalization:
  • The infusion of ₹70,000 crore into public sector banks would be a significant contribution to easing the liquidity situation caused by non-performing assets. It is mentioned that this will be accompanied by governance reforms
  • The package for the financial sector also includes a time-bound public guarantee to commercial banks that acquire assets of the presently troubled Non-Banking Financial Companies (NBFCs).
  • This should bring some stability to the NBFC sector, instability in which would ruin the lives of hundreds of investors and choke lines of credit outside the banking sector.
  1. Tax-related changes
  • The proposals on taxation include changes in both tax liability and administration.
  • The exemption limit on the income tax has been raised but the surcharge has now been increased on those in the highest two tax brackets. There is a balancing act here.
  • Similarly, the upper limit for eligibility for the lowest slab of the corporate tax has been raised from ₹250 crore to ₹400 crore.
    • This in line with the demands of India’s corporate sector but it may not be what is best for the economy at a time when the government needs as much revenue as it can garner to quicken it.

The new era of tax administration

  • The Budget has initiated a new era with respect to the tax administration.
  • Compliance is to be made easier for the taxpayer.
  • There are to be pre-filled tax returns and less human interaction in the event of tax scrutiny.
  • There will be ‘faceless assessment’ through the use of an electronic mode.
    • Face-to-face encounters between inspectors and the assesses will be eliminated, with notices sent from a central Income Tax cell.
  • Some similar simplification is to be done in the sphere of the Goods and Services Tax too. The Minister is right to speak of all this as a “paradigm shift” in the functioning of the tax department.

Where the Budget Fails

  • This Budget’s failing is in not setting out the means by which the government is to take the economy to the aspirational $5 trillion levels.
    • Moving to a $5 trillion economy by 2024 would require growing at a rate faster than the average that has been achieved since 2014.
    • There is no mention in the Budget of public investment, stepping up of which would be essential even to stimulate private investment right now.
    • Capital expenditure has been raised by much less than the actual increase in the past year.
    • It is believed that the very return of this government is sufficient to release the ‘animal spirits’ of private investors.
    • However, this would amount to overlooking history since 2014. In this period, though there has been macroeconomic stability and much attention has been paid to the ease of doing business, private investment has declined.



By Moderator July 6, 2019 12:47