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#NirmalaSitharamMaidenBudget: Welfare economics is here to stay & grow!

#NirmalaSitharamMaidenBudget: Welfare economics is here to stay & grow!

#NirmalaSitharamMaidenBudget: Welfare economics is here to stay & grow!
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By Rakesh Khar  Jul 6, 2019 8:58:10 AM IST (Updated)

The budget can’t be and should not be please all policy statement.

Ten years ago she was one of the many party spokespersons. Today she became the first full-time woman Finance Minister (Indira Gandhi served the role in the capacity of being the PM). Her own phenomenal rise in the corridors of power gave her a new halo and as she rose to present her budget expectations went soaring.

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It was a tall order. To borrow from a cricket analogy, she was expected to be a — Dhoni, Kohli and a Bumrah — all rolled into one. With such a tall order to meet, her performance might have disappointed many, especially the corporate world.
Given the cricket push in our day-today-life, Nirmala Sitharaman was expected to be a finisher rather than a starter. Just that it was her first budget that didn’t let go off the argument that it was the sixth budget of the NDA government and arguably the most appropriate time to indulge in some blockbuster strokes.
The irony is that while the budget is a crucial policy document, it is not the only tool in the hands of policy mandarins to bring about radical reforms. But over the years, the Union Budget has become a mega media event which has naturally raised hopes for some mega headlines.
Core Constituency
It might not be the perfect headline budget but to label it as a tame effort would be a grave mistake. The budget can’t be and should not be please all policy statement. Given the scarce resources at hand, it must pick up the core constituency.
The budget has, accordingly hit the right sentiment with the focus continually on the bottom of the pyramid. It has made some right noises about other important constituencies — the middle class, India Inc and the global investor community. But the actual target is unmissable.
That is where the budget carries a distinct Modi stamp. It sustains and in fact grows the pitch to go against the rich while seeking the support of the business community in building a just and equitable society. The core message in the budget is: inclusive economics is inclusive politics.
The save water mission is the big stroke that the government has offered right at the start of the second innings. It has huge socio-economic perspective and linkage with MNREGA and would do well to convert a political asset into a socio-economic asset as well.
For the wealthy, Sitharaman's budget was a big blow. The finance minister shunned the wealth tax, but increased the surcharge for the rich, proposing to increase the surcharge for those earning 2-5 crore, 3 percent and for those earnings above 5 crore to 7 percent. Rich would indeed complain but the political message here is consistent.
Those who might have reason to feel disappointed would argue that we have lost a golden opportunity to usher in some radical reforms. This is where one needs to understand that policy-making isn’t done in a T-20 format. Policy making is more in the realm of a test match where endurance, temperament and skill set have a far greater play.
With a record mandate under its fold, Modi government must set its own pace of reforms. There is only key caveat here: it must not ever divorce itself from the ground reality. The economy is under pressure and a spending spree to improve lives may well be part of a political strategy but without investments and growth, the ‘soponomics’ model isn’t durable.
Pro Poor Push
So, let us look for a moment at what the budget has done for the poor in the country. There are a plethora of ideas for the poor and the farm sector which is under severe stress.
The broad mantra rests on the following mantras:
  • Every rural family to have gas, power connectivity by 2022.
  • All rural families to have electricity connection by 2022.
  • Government to keep Antyodaya at core of all its policies.
  • Villages, poor, farmers at centre of every government plan.
  • Gaon, garib, kisan at centre of every government plan.
  • Zero-Budget farming would be taken to replicate zero-budget farming, currently practised in a few states, in all of India. It considered 'zero budget' because the costs of raising the main crop are offset by the income that farmers earn from intercrops. Under this method, chemical fertilisers and pesticides make way for locally available cow dung and cow urine, jaggery and pulse flour. The minister also announced measures to invest widely in the agriculture sector.
    The FM declared that India to be open-defecation-free by October 2. A Rupees 3,000 pension per month for informal sector workers is a positive move. Around 30 lakh workers are now covered under the Pradhan Mantri Shram Yogi Maandhan Yojana, the scheme that provides a monthly pension of Rs 3,000 to informal sectors’ workers after they turn 60.
    For the middle class, another big vote bank of the Modi government, the salaried class had expected better. The Budget today proposed to make PAN card and Aadhaar card interchangeable to file tax returns. In addition to that, those who do not have PAN can simply quote their Aadhaar number wherever PAN is mandatory to quote.
    The EV piece is positive too. The Budget announced that upfront incentive will be offered on purchase of electric vehicles, adding that the government has already moved GST Council to cut rate for EVs to 5 percent from 12 percent. The EV policy also got a boost with the other big announcements on (a) tax deduction of Rs 1.50 lakh on EV loan interest, and (b) No custom duty on certain parts of EVs.
    One nation, one card for seamless mobility is another good idea. This inter-operable transport card runs on RuPay card and would allow the holders to pay for their bus travel, toll taxes, parking charges, retail shopping and even withdraw money. This will enable people to pay multiple kinds of transport charges, including metro services and toll tax, across the country.
    Reforms Too
    On the industry piece, Sitharaman's budget proposed to provide banks with Rs 70,000 crore of capital to boost credit. She also informed that there has been a record recovery of over 4 lakh crore of bad loans through IBC in the last 4 years.
    When it comes to reforms, probably the biggest one came about with regard to start-ups in the breather on Angel Tax.  In a major breather for startups, it was announced that startups and investors who file requisite declarations and provide information in their returns will not be subjected to any scrutiny on valuation.
    Digital India too got a leg up. The budget proposed that Merchant discount rate won't be charged on businesses with a yearly turnover of over 50 crore and also on their customers. RBI and banks will absorb these costs. The move is expected to be a major push to cashless payment.
    The announcement about the reform of rental housing laws is indeed welcome. Modern tenancy law will be shared with states to promote house renting. The current mechanism doesn't adequately address the relationship between the tenant and the landlord.
    The budget announced that local sourcing norms for FDI in single-brand retail will be eased. The proposal is expected to solve a longstanding problem in the sector.
    Efforts will be made to bring in foreign students under a Study in India plan, the budget said. She said the government will make renewed efforts to promote research in the country. This is indeed a good idea.
    But India Inc isn’t too excited with the corporate tax provision. The budget proposed to bring under 25 percent tax ambit companies with an annual turnover of up to Rs 400 crore, in place of the earlier cap of Rs 250 crore.
    The salaried class have reason to complain. Standard deduction and TDS threshold didn't find a mention in the budget. It came as a dampener for the salaried taxpayer because Piyush Goyal had promised to hike these limits in his February interim budget.
    Going back to cricket, it would be fair to assume that the finance minister and the government is keen to use time at its command. It is within its right to play a test match but without doubt, the expectation that India has ultimately played to win is not at all unfair. Remember the mandate is for an outright win for India. No, excuses, please!
    Rakesh Khar is senior editor, Special Projects, Network 18. He writes at the intersection of politics and economy.
    Read Rakesh Khar's columns here.
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