About ease of living, too

Sushma Ramachandran
Senior journalist

The first Budget of the second Modi government has put a clear focus on bringing some life back to the investment climate by making credit flows easier even while running a tight ship as far as fiscal consolidation is concerned. It has also tried to ensure that an electorate that has voted it back in a big way is not penalised by higher taxes. On the contrary, it has tried to continue the theme of ease of living along with increasing the ease of doing business, so that the common man finds some respite in daily life. Allowing taxpayers to use the Aadhaar card instead of the PAN card for filing returns, cutting consumer charges on digital payments in smaller establishments, simplifying income tax returns and providing tax breaks for affordable housing are among the measures aimed at making life easier for citizens. Even in rural areas, the Budget has looked to make life easier by aiming to provide all households with electricity and clean fuel by 2022.

The country’s first full-time woman Finance Minister, Nirmala Sitharaman, belied expectations of many analysts who had predicted that her Budget would focus on the farm sector. Clearly, she recognised that most of the critical decisions on agriculture had already been taken by her predecessor, Piyush Goyal, in the interim Budget presented in February. This included the Rs 75,000-crore payout to farmers in the form of the Prime Minister’s Kisan Yojana. Apart from talking about the need to enhance the fisheries sector and provision of skill development and entrepreneurship support for rural areas, there is little here for farmers. However, the MSP for all kharif crops was raised substantially just a few days ago.

Though the middle class, another big constituency of the ruling party, may feel let down by the lack of relief in personal income taxes, the FM has put pressure on the super-rich by fresh taxes that will garner enough to fund some welfare measures. The corporates that provide the bulk of taxes also have no relief but the tax rate has been cut to 25 per cent for companies with a turnover of Rs 400 crore, raising the ceiling from the earlier Rs 250 crore.

The clear focus of this Budget, however, is infrastructure, with the proposed push for investments in roads, inland waterways and highways. Over Rs 80,000 crore is proposed to be invested in the third phase of the rural roads programme along with a plan to use rivers for cargo transport to decongest the railways and roads. In addition, the dedicated freight corridor of the railways will be implemented as well as a big scheme to modernise rail stations. This has to be seen in the context of the big highways network proposed in the interim Budget. The entire scheme aims at the public-private partnership model in a clear bid to get the private sector involved in the virtuous cycle of investments mentioned in the Economic Survey.

Another key facet of the proposals is the drive to attract foreign investment, either via the equity or portfolio route. The big irritant for single-brand retailers like Ikea is sought to be removed now by eliminating the local sourcing condition for foreign investors. Foreign investment will also be allowed in insurance intermediaries, clearing the way for bigger inflows in this sector. This is apart from the relaxation being allowed in the aviation and media sectors which could potentially bring in a host of investors from abroad.

Along with these macro decisions, the proposals include dealing with micro irritants that obstruct investors, including KYC norms or procedural issues faced by NRIs trying to make investments in this country. Most times, NRIs find procedural bottlenecks so overwhelming that good intentions of making investments are given up in the face of multiple irritants. Hopefully, some of the decisions may help in removing these and hence leading to more investments.

There is a raft of proposals on affordable housing that could conceivably revive the dormant real estate industry. Plans for setting up more houses are continuation of projects begun in the previous five years, but more incentives have been given for owning and building affordable housing. Construction is a big jobs provider and these measures could ultimately prove to be the right medicine to revive growth.

Startups have been given special attention in the proposals. The much-reviled angel tax has not only been revoked, but the income tax department has indirectly been told to treat startup ventures with kid gloves. The rationale evidently being that startups have succeeded all over the world only when the government regulatory authorities have kept at a safe distance. 

Sitharaman has taken care not to neglect the critical banking sector which has got a much-needed capital infusion of Rs 70,000 crore in the proposals. The NBFCs have not been left out of the equation in an effort to ensure that credit flow to support higher investments is not choked. A first step has been taken to undertake borrowings from world markets, an innovative measure that may ultimately yield positive results. 

As for disinvestment, whether this regime will actually bite the bullet and carry out strategic disinvestment in the real sense, as was done in a big way by the Vajpayee government, is yet to be seen. If it fails to do so and continues to rely on the fudging approach of shifting funds from one public enterprise to another in the name of raising disinvestment proceeds, it will be doing a great disservice to the public sector.

The first Budget of Modi 2.0 has surely not unveiled any big-bang reforms. This is in line with the incremental approach of the past five years. But it does have its eye on the need to build up infrastructure. This may not be the best of all Budgets, but it may ultimately end up achieving the primary aim, that of creating more jobs.