The relief in income tax effectively strengthens the great Indian middle class whose expansion of purchasing power holds the key for India’s future.
The Interim Budget bestowed by Shri Piyush Goyal today marks a high point in the policy directions that the Government directed by PM Shri Narendra Modi has given to this nation. Interim Budgets which are performed in the Election Year seek a Vote on Account for a limited period till the post-election Government can determine the further direction of the economy. Nonetheless, past precedents have conclusively shown that urgent steps are needed in the larger interests of the economy and they can be taken. We have the important precedents of the year 2009 and 2014 where significant taxation differences were brought about in the Interim Budgets.
Interim Budgets are also an occasion for the Government of the day to introspect their execution of the last 5 years and place its facts before the people. The Government also draws its vision for the future of the Indian economy. This is exactly what Shri Piyush Goyal’s Budget Speech has done.
Let me try to expand and explain the performance of the past 5 years and the further direction which the Interim Budget has given.
The political thrust
The political thrust of the past 5 years both through budgetary outlays, tax policy and legislative and administrative steps have been to form a Government which is firm, compassionate and clean. The economic reforms initiated have unshackled the Indian economy, unleashed its potential and made us a global leader in growth. India is the quickest growing major economy in the world and is becoming a nation where it is easier to do business. The Prime Minister’s administration has provided India with a decisive Government which is capable of even taking difficult decisions.
Reforms have been promised with the idea of enhancing growth and the benefits of high growth have gone predominantly to the poor, the rural and the farm sector and infrastructure creation. Better reliefs have been provided to the taxpaying segments of the population. The anti-corruption and pro-transparency pressure of the Government involved the elimination of routine permissions and approvals, ending of discretions in the determination of contracts, licenses, and natural resources. They would be provided only through a market mechanism. An enhanced payment of State support through the Direct Benefit Transfer dropped all leakages.
The important reforms undertaken by the Government involved important steps like the GST, denial of human interface in both the Direct and Indirect Taxes, the lowering of both Direct and Indirect Taxes and the expansion of the tax base. The Government has initiated a major investment through capitalization to revive the banking system which was stressed on account of past legacy issues. The Insolvency and Bankruptcy Code being enacted, major credit schemes like the MUDRA loans, low-cost insurances and pensions and a major thrust towards funding the MSMEs, have all done key Banking Sector Reforms. The Demonetisation was a major attack on a high-cash economy which generated black money, tax evasion, and even corruption. Demonetisation proved to be a major step towards formalization of the economy significantly improving India’s tax collection and a movement towards the digitalization of the economy. The long-pending reform was enacted in terms of the Monetary Policy Committee of the RBI. The Unique Identity Number rendered by AADHAAR is a significant reform which is peculiar only to India. This includes 99% of India’s population.
Social sector changes such as financial inclusion, uniting every family to banking, every home to electricity, each kitchen to cooking gas, each home to a toilet have been witnessed in the past 5 years.
India has produced the largest recipient of FDI thanks to a liberalized policy. Our support sector in highways, ports, airports and civil aviation, power, smart cities, Metro systems, improved urban facilities has made a significant contribution.
The Government personnel, both Government employees and as those of the armed forces and para-military forces have helped by the enhanced benefits being given to them through the implementation of the 7th Central Pay Commission, OROP and by the advances made in the New Pension Scheme.
The Indian Middle Class
Shri Piyush Goyal has now made a significant announcement wherein income earners earning up to Rs. 5 lakhs have been excused from payment of Income-tax. This effectively adds the great Indian Middle Class whose expansion of purchasing power holds the key to India’s future.
However, in each of the Budget’s of Prime Minister Narendra Modi’s Government, there has been an important relief to India’s middle class. The tax ban limit was first raised from Rs. 2 lakhs to Rs. 2.5 lakhs. Consequently, without altering the slabs, people earning up to Rs. 3 lakhs were excused from payment of taxes. In an additional calibrated move, those in the income bracket of Rs.3 to 5 lakhs witnessed their tax liability being halved from 10% to 5% and today this category has been completely exempted. To this, if the other tax reliefs under the Income-tax Act are added, the number of beneficiaries will further rise. For payment of interest on housing loans, the deduction limit was expanded from Rs. 1.5 to Rs. 2 lakhs. The section 80C deduction limit was increased from Rs. 1 lakh to Rs. 1.5 lakh. The Government assumes that salary-paid employees whether in the Government or in the private sector are an honest set of tax assesses. Their complete tax is deducted at source. Last year the Government restored the benefit of Standard Deduction to them at Rs.40,000/-. This time this benefit is being extended to Rs.50,000/-. For Senior Citizens, the limit for benefits accruing on account of health care, tax payment, and insurance is higher. Thus if all these benefits are given to India’s Neo-Middle Class and Middle Class are added, a person getting about Rs. 8 lakhs a year can get away by paying almost no tax.
As the tax base increases, which it has, the Government’s capacities in future years to move in this direction will further increase.
The GST was enforced 19 months ago. It has now brought down most taxes on goods from 31% tax to the 18%, 12%, and the 5% bracket. Never in the history of India during the five-year tenure of a Government, we have seen tax reduction and a Middle-Class relief of this magnitude. Lower taxes, higher base, and larger collections are the high point of the past 5 years. This has been made feasible because an anti-corruption regime made non-compliance more difficult.
Infrastructure does not accept caste, creed or religion. It is a dexterity that the State renders to all. We are today the fastest highway maker in the world. Our port sector both in the government and the private sector is increasing its capacity and making large profits. On the Civil Aviation front, we are amidst the fastest growing Civil Aviation economies of the world with already 100 functional airports. Our national Inland Waterways have been put to effective treatment. The Indian Railways are not only growing each day but improving upon the quality of their services and performance. Our power sector has expanded its capacity to ensure that every household has an electrical connection. Our current emphasis on non-conventional energy is generating results. Each of the last 5 year’s Budgets has expanded the expenditure on infrastructure. The Interim Budget maintains the same direction.
The Government estimated the above dictum and worked in that direction from day one. India’s Financial Inclusion program the Pradhan Mantri Jan Dhan Yojana has been globally recognized. The Unique Identification assured that pilferages, leakages, and misuse of Government support applications do not take place. The money spent from this was also focused on the poor. The Pradhan Mantri Suraksha Bima Yojana, Pradhan Mantri Jeewan Bima Yojana, Pradhan Mantri Mudra Yojana were all an expansion of this inclusion programme. The urban and rural AAWAS Yojanas have ensured that by 2022 there should not be a single roofless family in India. The right to food has been secured by making the largest ever allocation for cheap ration to a large section of India’s population. Nearly doubling the actual expenditure on MNREGA has ensured that the rural unemployed can get a livelihood source. To make the right to life proper in a short span, the government ensured that the overwhelming number of rural houses get sanitation. The BPL families are turning over to the cooking gas. Every willing household has been compared with electricity.
The political act of the Government to render a 10% reservation for the economically weaker sections of the non-reserved category in educational institutions and jobs. The Government healthcare programme Aayushman Bharat has been globally acknowledged. 40% of India’s population including the weakest is now entitled to hospital treatment free up to Rs. 5 lakhs a year at State cost. The Government’s concern for calling 115 under-developed Districts as the aspirational Districts has been guided by the Antyodaya philosophy.
Last year in the Budget, the Government had proclaimed that the recommendations of the Swaminathan Commission would be implemented and every farmer would be allowed to get 50% more than his input cost. Prof. Swaminathan himself has recognized the Government decision. The others had only agreed on it, the Government delivered it. Nonetheless, in view of the lack of the procurement system in certain States, many farmers did not get the full bonus and had to sell their produce at softer prices. The Government has made massive exercises to improve the quality of rural life. It has enhanced agricultural credit, guaranteed a crop insurance scheme, enhanced investments in irrigation and still, the fundamentals of the economy are that the Indian farmer who gives us the surplus produce deserves a lot more. The farmer’s welfare can’t wait. In another step in this direction, the Budget has announced today a significant income support scheme for every small and marginal landowning family involved in agriculture. They will each be designated to a sum of Rs. 6,000/- annually. This will be a major step to put more money in the pockets of our food producers. This significantly expands the Government expenditure in the FY 2018-19 as also in the future years. This has had a marginal impact on our forecasts of the fiscal deficit but we are confident of being on the glide path as per the recommendations of the FRBM Committee. Changing the lot of the Indian farmer and adding to his purchasing power, in the long run, will help the economy much more than the expenditure being undertaken.
The future vision
The future vision is to build India a 5 Trillion Dollar economy. By the midpoint of the next decade, we will achieve this and consequently, target doubling that size of the economy. With the current growth rates, we are on track to achieve this. This incorporates a commitment to make sure that we work for every Indian and not just for the unduly privileged families. We envision an India where poverty is defeated, the Eastern regions of India grow at par with other parts of the country, rural India having urban-like facilities, and that female employment in India in the formal sector expeditiously increases. Challenges of the future are going to be faced by special emphasis on food processing, green energy, health care, world-class educational institutions, multiplying tourism potential, global quality infrastructure, making India a hub of electronic manufacturing, textile, and apparel with a special focus on organic farming and non-conventional energy. More modern cities and urban renewal will be the focus.
We are growing at a rate faster than other similar economies. We are proud of our achievement. Yet we are anxious. We wish to grow faster than even our present status of the world’s fastest-growing economy so that we can cover up for the missed historical opportunities.