Since it’s the middle class that is on the forefront of commenting on the handling of the overall economy by the government, this editorial begins with what Union Finance Minister Piyush Goyal’s Budget 2019-20 proposals on 1 February gave to them.
Budget for middle class
The mood following the presentation of Narendra Modi government’s Budget 2019-20 swung from upbeat to moderation to elation again in the middle classes on Friday, as 0% tax for income up to Rs 5 lakh per annum brought little cheer in relatively richer citizens but then the realisation that people earning up to Rs 10 lakh can get away paying nothing through smart investments dawned. This zero tax liability comes from the calculation of Section 80C exemption of Rs 1.5 lakh, standard deduction of Rs 50,000, interests on loans of Rs 20,000, contribution to the National Pension Scheme of Rs 50,000 and health insurance premium of Rs 50,000. If that brings down the taxable income to Rs 5 lakh, the I-T payable is Rs 12,500. However, by claiming a rebate under Section 87A of an equal amount, the applicant ends up paying no tax at all. But this is a rather narrow vision. The middle-income group must look at the money they have saved under the Narendra Modi regime that has kept inflation in check better than all governments in the past. Add to that the fact that the prices of commodities are constantly reducing, thanks to the repeated downward revision of the goods and services tax by the Centre-State council that determines these consumption tax rates.
A point about this unique class of people must be made: It’s the only section of voters that does not elect representatives solely on the basis of what it thinks the government has or has not done for it; whether it likes the ruling party’s governance of the whole country/State/city influences its decision, too.
Budget and more for farmers
The much-awaited alternative model of the BJP government to relieve farmers of stress without taking recourse to the populism of loan waiver is finally out. The direct benefit transfer of Rs 6,000 a year under the Pradhan Mantri Kisan Samman Nidhi will look peanuts only to the richer section of the farming class. As many as 12 crore farmers of the lowest income group holding cultivable land of up to 2 hectare will benefit from it. More could have benefited if the land records across India were to be as good as those in Telangana where the DBT helped K Chandrashekar Rao’s TRS win the recent Assembly election. Then there are sharecroppers and daily-wage labourers in farmlands whom both Centre and the States have to devise ways to reach and benefit. Remember, a help from the state is meant for the absolutely financially unempowered alone — whether one studies the Budget from the perspective of a middle-class citizen or that of a farmer. More so, when the sector is contributing a measly 14.4% to the GDP.
Eventually, as Sirf News has argued time and again, a huge chunk of farmers has to diversify to more productive fields of work; no advanced economy sustains 45% of its population in farming. About 18% of the farmers who are well-off can stay in the vocation with huge tracts of land feasible for scientific experimentation when all the layers of brokers from farm to retail vanish in a farmers’ market of the future, which will be a boon for both producers who will earn more and consumers who will save more.
For unorganised sector and women
If the services and industrial sectors are contributing respectively 54.1% and 31.5% to the GDP, finance minister Piyush Goyal has announced a pension of Rs 3,000 for the poor workers in these sectors, beginning at the age of 60 years.
Women have now an added incentive to work as seen in the fact that more than 70% beneficiaries of MUDRA are from the fairer sex. When in 2017, the maternity leave was increased to 26 weeks after delivery, scepticism had engulfed the industry that wondered if the measure would make recruiters reluctant to employ women who would be expected to stay away from the office for a long period. To address the concern, the Budget provides Rs.1,330 crore, a part of which would pay half the cost of keeping the female workforce away from work.
When every section of society has got something from the Budget, a legitimate question arises as to how so many welfare schemes will be funded. The answer to that has several parts: One, low rates of taxes lead to higher revenue collections across the world; India is no exception. As data released by the Ministry of Finance in regular intervals show, GST (Rs 1 lakh crore in November-December 2018) as well as I-T collections (Rs 5.47 lakh crore in April-September 2018) are constantly increasing while the tax net is expanding too, bringing into the fold people who did not hitherto pay taxes: 60 million people paid I-T last year, a jump of 50% over the number of assessees in 2017.
Two, unlike the Congress’s style of revenue expenditure, which empties the treasury, the BJP relies more on capital expenditure, investing money where it grows, allowing it to fund welfare schemes better. Of course, private sector investment on the domestic front has been uninspiring, which is surprising because foreigners, who had for long had an awful opinion about the business environment in this country, showered our market with direct investments worth $ 61 billion. For all the complaint of an RBI not caring for the business class, the lending rate reduced from 10-10.25% in 2014 to 8.25-8.55% now. If the private sector still looks disinterested, the Keynesian style of pumping in public investment to energise the market is working — the gross fixed capital formation increased from 1.6% in 2013-14 to 10% in 2016-17 — except that it is not creating enough jobs.
Three, with the rate of poverty reducing from 25.7% of the total population in urban areas and 41.8% in rural areas in 2004-05 to 9.49% and 14.05% in 2011-12 to finally 3.79% and 4.25% respectively in 2018, state support to the needy in the form of subsidies reduced from 18.23% of the GDP during the UPA year of 2012-13 to 11.96% during the NDA year of 2018-19. Taking all of the above into consideration, the fiscal deficit has remained at a modest 3.4% of the GDP, marginally higher than the target and yet better than the previous year’s figure.
Finally, jobs remain the only jarring note in the Modi symphony. But then, the problem is exaggerated. A recent authoritative study showed that the number of jobs needed is 5 million rather than 12 million, which the youth will realise only if it stops chasing government jobs as though it were the pre-1991 era. They will do that when the government stops hiking salaries in the public sector to unreasonable levels through Pay Commissions. Further, even as India’s ranking in ease of doing business improves gradually, the States and local governments must work on it further to bring an end to the inspector raj. The private sector must feel guilty about not delivering on its promises made during the launch of Make in India in 2014. The media must orient people in favour of political parties that are more market-friendly rather than rejoice the victory of regressive socialists in elections in the name of celebrating democracy. And even school education must include the fundamental lesson in economics that there is no such thing as a free lunch.